- By the autumn, there must be convincing signs of economic recovery to limit the threat of another round of industry cutbacks and financial market volatility. At present, confusion still reigns over the precise state of the world economy. China is strengthening and the recession may be bottoming out in countries such as the US, UK and France. On the other hand, conditions in some regions - most importantly in most of the Eurozone and emerging Europe - are still deteriorating and creating the risk of further feedback effects.
- Adding to the short-term threat, there is a potential policy vacuum in the Eurozone until elections in Germany are over in September. One reason for the ECB's recent injection of funds may be the need to ensure stability over the next couple of months - and concerns continue over the performance of the European banks and the need for transparent stress tests.
- Although the unemployment rate has risen more steeply in the US than Europe, if short-term measures to support jobs in the Eurozone (especially in Germany) lapse, this could add another 2-3 million to Europe's jobless total by the end of 2009.
- The negative effects of the crisis are likely to be even more persistent in Europe than in other regions because of weak internal dynamics and difficulties linked to complex cross-border banking and policy synchronization. This situation is already impacting on social cohesion and voter sentiment, casting a long shadow over both EU integration and potential expansion.
- In general, more attention needs to be paid to a key issue highlighted by this crisis: how global cyclical industries impact on economies, jobs and policy choices. Should the worst affected economies enhance strategies to provision for the impact of downturns or would they be better advised to reduce exposure to cyclical industries? What might this imply for global industrial structures, trade and efficiency? Might this increase Asia's role?
- Questions must also be addressed regarding persistent large errors in forecasts and analysis and the impact this has had on policy decisions and speed of reaction.
Read G8 End of Term Report: Europe Needs to Improve Quality of Forecasts and Risk Assessments, a briefer version of this paper.