NEW YORK, (Reuters) – Top U.S. economic officials pressed for global coordination to battle the financial crisis yesterday and the president of the European central bank said there were signs the world economy may be near a turning point, but stock investors continued to signal their anxiety.
As the G20 nations prepare to meet in London next month, White House economic advisers said more countries need to lower interest rates and step up spending to pull the world out of recession.
But global stock markets slipped toward 14-year lows, and the Dow Jones Industrial Average continued last week’s negative trajectory, falling 1.2 percent. The Nasdaq lost 2 percent.
After economic gloom spread from Asia as Japan recorded its largest current-account deficit, billionaire investor Warren Buffett said at the beginning of the U.S. trading day that the U.S. economy had “fallen off a cliff” and warned of the risk that inflation will accompany any rebound.
A $41 billion deal for Merck & Co Inc to take over Schering-Plough Corp failed to spark a rally in the broader market.
European Central Bank President Jean-Claude Trichet said financial markets are underestimating the potential for a recovery and said top bankers were seeing signs of a turning point.
“We are identifying a number of elements in the global economy … that are expansionary,” Trichet said.
Trichet, who chaired talks on the global economy at a Bank for International Settlements meeting in Basel, cited the fall in commodity and oil prices, budget stimulus packages and commitments not to let major financial institutions fail.
The European Union was set to back calls to double the International Monetary Fund’s arsenal to $500 billion to fight the financial crisis.
An EU draft document obtained by Reuters, which was on track to be approved by EU ministers today, said: “It is essential that the IMF has appropriate financial means to assist countries particularly affected by the current crisis.”
The United States continued to promote a global stimulus.
U.S. President Barack Obama’s National Economic Council Director Larry Summers and Council of Economic Advisers head Christina Romer both suggested the U.S. administration wants all industrialized nations to pull together to fuel a demand-led recovery.
Summers said stimulating demand should be the focus of the G20 group of rich and developing nations, whose finance ministers will meet this week ahead of the April summit.
“The right macroeconomic focus for the G20 is on global demand and the world needs more global demand,” Summers said in an interview with the Financial Times.
Romer said the rate of global recovery would depend on how many countries lower interest rates and step up spending, and added: “In this regard, the aggressive fiscal action in China and the reduction in interest rates in Europe and the UK announced last week were welcome news. They are paving the way for a worldwide end to this worldwide recession.”
But Romer also said it was too early to consider whether the U.S. economy needed another stimulus package so soon after a $787 billion package was approved. “We need to let the medicine work for a while,” she said.
Worries about the bigger economic picture weighed on what in ordinary times would be enthusiasm for the marriage of Merck and Schering-Plough.
Investors feared that it highlighted the broad reach of the recession, weakening even defensive sectors of the economy such as pharmaceuticals.
“In any other market, this would be really bullish news,” said Peter Kenny, Buffett told CNBC television that U.S. economic developments were close to the worst case he had imagined and said recovery would not happen fast. He warned that a rebound could ignite inflation worse than that of the late 1970s.
“People are confused and scared,” he said.
The Conference Board, a research group, said the U.S. job market weakened sharply in February and has deteriorated over the last year at its worst rate in at least 35 years.
Inflation fear contributed to a rise in the price of U.S. oil by more than $1 to above $47 a barrel.