Too early to drop global stimulus

Seoul - British Business Secretary Peter Mandelson said on Wednesday that governments have no choice but to keep in place for now the massive stimulus that is propping up the global economy, though warned such measures are ultimately unsustainable.

"The task of sustaining the recovery and not doing anything to wreck it is the biggest economic policy challenge facing the world," Mandelson told a meeting sponsored by a South Korean business forum. "We need to coordinate what we're doing so as to maximise the impact of our national policies."

"Because of the danger of a deterioration in the world economy support policies must be retained "so as to minimize the risk of that happening and, if it does, have measures in place to overcome it as quickly as possible," he said.

Mandelson's comments came on a brief visit to South Korea for talks with government and corporate officials, including the country's trade minister and President Lee Myung-bak. Britain is the current chair of the Group of 20 and will pass leadership next year to South Korea, which plans to host a summit in November 2010.

Top economies have taken aggressive measures since the onset of the global financial crisis just over a year ago, implementing massive extra spending, slashing interest rates and even bailing out entire industries.

Leaders from the Group of 20, which has taken the lead in steering the global economy, agreed at their summit last month in the United States to continue with government spending programs and low interest rates to nurture a global recovery.

Yet in Australia, hopes of a recovery are so established that the central bank Tuesday felt able to raise its benchmark interest rate by a quarter percentage point - the first hike by a major central bank since the financial crisis worsened last fall.

The Reserve Bank of Australia raised its cash rate to 3.25% from a 49-year low of 3% after having slashed it a total of 4.25 percentage points to help deal with the crisis.

Other nations have also slashed rates to record lows, including South Korea, where it stands at 2%.

Mandelson, who formerly served as European Union trade commissioner, acknowledged that while the coordinated efforts are keeping the global economy afloat, they cannot go on forever.

"Our public finances will not support indefinitely the sort of stimulus measures that have been taken necessarily to fight back against the recession," he said. "Over the medium term there has to be action taken to rebalance national finances."

He warned, however, that acting "too early, too quickly and in an ill-judged way, we would be threatening the recovery on which our future growth depends. That's why these decisions have got to be got right rather than hurried."

- AP