Global Economic Slide May Be Easing as G-20 Gathers

Leaders of the most powerful nations meet today amid signs that the world economy is stabilizing after months of freefall.

The Group of 20 summit convened in London as some reports suggest the pace of decline is easing. U.S. durable-goods orders and home sales rose in February, Chinese urban investment surged 26.5 percent in the first two months of the year, and German investor confidence in March reached its highest level since July 2007. The Standard & Poor’s 500 Index last month rallied the most in seven years.

Policy makers must still contend with plenty of bad news: The World Bank is warning of an “unemployment crisis,” and the U.S. Labor Department is forecast to report tomorrow that the jobless rate is now the highest in a quarter-century. The challenge for the G-20 is to turn the early indications that the worst is over into a fully fledged recovery.

“If you look at history, equity markets rally before the economy does,” said Alastair Newton, a political analyst at Nomura International and a former U.K. government official. “With the worst in unemployment to come, there’s still pressure on the leaders to act.”

Stocks rallied today, driving the MSCI World Index higher for a third day, while Treasuries and the yen declined on speculation that the international downturn is abating.

Advancing Agenda

U.S. President Barack Obama, U.K. Prime Minister Gordon Brown and their G-20 counterparts -- responsible for 85 percent of the world economy -- gathered to push along an agenda aimed at ending the slump and avoiding a repeat of the financial crisis that caused it. They are scheduled to release a statement and hold press conferences about 3 p.m.

The talks began after leaders signaled they will endorse more cash for the International Monetary Fund, seek to revive trade finance and reject protectionism. Initiatives to rein in toxic assets, hedge funds, derivatives trading, executive pay, tax havens and excessive risk-taking by financial firms are also in the works.

“This meeting will reflect enormous consensus about the need to work in concert to deal with these problems,” Obama said yesterday.

Bracing for Protests

With police braced for more protests on the streets of the U.K. capital today, there are signs of discord among the policy makers, too. French President Nicolas Sarkozy and German Chancellor Angela Merkel yesterday said an agreement on specific ways to tighten regulation was still some way off, while Japanese Prime Minister Taro Aso criticized Germany’s unwillingness to boost spending.

“We must stand united in our determination to do whatever is necessary,” Brown said yesterday. Merkel said she and Sarkozy “want results, but we don’t want results that have no effect in practice.”

Evidence is building that the deepest global recession since World War II may be easing -- giving comfort to those who say the G-20’s $2 trillion of fiscal stimulus is working, as well as those who argue that enough has been provided. An index compiled by UBS AG economists to show when economic data is stronger than markets expect logged its biggest jump last month since August.

Signs of Recovery

Among what economists call the possible “green shoots” of recovery: In the U.S., sales of new homes rose unexpectedly in February by 4.7 percent, and factory inventories are falling. The rate of contraction in European manufacturing and services industries is slowing. New bank lending quadrupled in China in February and vehicle sales rose 25 percent, while Japanese companies including automaker Nissan Motor Co. say they will increase production in coming months. A new report today showed U.K. house prices surprisingly rose for the first time since October 2007.

“Our bet is that the global economy is poised for significant improvement,” said David Hensley, JPMorgan Chase & Co.’s New York-based director of global economic coordination.

Investors may already be tuning in. The S&P 500 climbed 8.5 percent last month; according to data compiled by the National Bureau of Economic Research and Bloomberg, the index began rising on average five months before recessions ended in 1975, 1982 and 1991.

“You’re seeing encouraging signs of improvement in our markets; we want to reinforce that,” U.S. Treasury Secretary Timothy Geithner said yesterday in an interview.

‘Still in Danger’

Even so, bad news still pervades. Data released yesterday showed that Japanese business confidence plunged to a record low, Chinese manufacturing is shrinking and German retail sales unexpectedly fell. Companies in the U.S. cut an estimated 742,000 workers in March, the most since records began in 2001, according to ADP Employer Services.

“The global economy is still in danger,” said Stephen King, chief economist at HSBC Holdings Plc. He identifies deflation, falling corporate profits and financial protectionism as the biggest threats. As for financial institutions, Deutsche Bank AG Chief Risk Officer Hugo Banziger said March 30 that the credit crisis is “far from over” and IMF Managing Director Dominique Strauss-Kahn says that recovery depends on bank balance sheets being unclogged of tainted securities.

For the G-20 leaders, who already face declining popularity at home, the biggest concern may be slumping payrolls, as companies from French automaker Renault SA to computer-services provider International Business Machines Corp. ax jobs. Growing job losses could snuff-out any nascent recovery by decimating consumer spending.

Unemployment Rising

In predicting the world economy will contract 2.7 percent this year, the Organization for Economic Cooperation and Development said two days ago that average unemployment in the 30 richest nations will top 10 percent next year.

A report this week already showed that job losses in Japan for February hit a three-year high of 4.4 percent. Unemployment in Europe jumped more than expected to 8.5 percent, the highest since May 2006, data showed yesterday. The U.S. rate for March probably leapt to 8.5 percent from 8.1 percent in February, according to the median estimate of analysts surveyed by Bloomberg News.

“There may eventually be light at the end of the tunnel,” said Nouriel Roubini, the New York University professor who predicted the crisis. Still “the economic recovery will be so weak that it will still feel like a recession.”

To contact the reporter on this story: Simon Kennedy in London at skennedy4@bloomberg.net

U.K. House Prices Unexpectedly Increased in March

U.K. house prices unexpectedly rose for the first time since October 2007 after the Bank of England’s interest-rate cuts attracted buyers to the property market, Nationwide Building Society said.

The average cost of a home jumped 0.9 percent in March from the previous month to 150,946 pounds ($218,000), the mortgage lender said in a statement today. All 13 economists in a Bloomberg News survey predicted a decline.

Mortgage approvals rose to a nine-month high in February, evidence the slump in housing transactions may be starting to ease after a 15.7 percent drop in prices during the past year. The Bank of England reduced the benchmark interest rate to a record low of 0.5 percent last month and started buying assets with newly created money to fight Britain’s recession.

“It is far too soon to see this as evidence that the trough of the market has been reached,” Fionnuala Earley, chief economist at Nationwide, said in the statement. “The willingness of borrowers to return to the market is encouraging and likely to in part reflect the falling cost of borrowing.”

U.K. banks may start lending more to consumers and companies in the next quarter after interest rates fell and funding loans became easier, the Bank of England said in a separate report today. An index of construction activity rose, while still showing contraction in the industry, the Chartered Institute of Purchasing and Supply said.

Pound Climbs

The pound climbed as much as 0.9 percent against the dollar today. The currency traded at $1.4572 as of 9:39 a.m. in London. Economists predicted a 1.5 percent drop in house prices, according to the median survey estimate.

U.K. homebuilder Bellway Plc plans to “step on the gas” in land purchases as house prices may not fall much further, Chief Executive Officer John Watson said March 31. “There may well be further falls, but it’s not going to be another 25 percent, so you’re getting nearer to a bottom,” he said.

Central bank policy maker Spencer Dale said last week that there are signs the U.K. housing market has stabilized, though it still looks in a “bad state.” Economists at UBS AG and Goldman Sachs Group Inc. said last month that there may be evidence of “green shoots” as mortgage approvals pick up.

Banks granted 38,000 home loans in February, up from a trough of just 27,000 in November, Bank of England data showed this week. Lenders have hoarded cash after racking up more than $1.2 trillion in losses worldwide.

Luxury Homes

Prices for London’s most expensive homes are still falling, a separate report showed today. The average value of houses costing more than 1 million pounds dropped 6.7 percent in the first quarter, a fourth consecutive drop, Knight Frank LLP said.

The central bank has started to buy 75 billion pounds of corporate and government bonds to stimulate spending and revive growth by lowering borrowing costs. Prime Minister Gordon Brown has also offered banks including Royal Bank of Scotland Group Plc billions of pounds in credit guarantees.

The U.K. economy shrank 1.6 percent in the fourth quarter, the most since 1980, and the Organization for Economic Cooperation and Development forecasts British gross domestic product will fall 3.7 percent this year.

A separate report showed labor unions clinched annual pay raises at a median 3.4 percent in the three months through February, down from 3.5 percent in the same period a year earlier, researcher Incomes Data Services said.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net

G-20 Leaders Spar Over Hedge Fund Rules, Pay as Summit Starts

World leaders sparred over an agreement to tighten rules on financial markets, with Germany and France pushing for specific measures to rein in hedge funds and compensation as the U.S. and U.K. urged unity.

As the Group of 20 summit began today in London, German Chancellor Angela Merkel and President Nicolas Sarkozy of France are pressing their case for a tougher crackdown on traders and lenders, in contrast to President Barack Obama’s view that there is “enormous consensus” to overcome the deepest economic slump since World War II.

The summit marks a “unique chance” to “thoroughly” change the financial system, Merkel, who faces elections in September, said at a news conference in London yesterday. “That’s why we’re being a bit tough.”

A failure to strike a pact would deal a blow to the summit’s aim of identifying ways to end the recession and prevent a repeat of the financial collapse that caused it. At the top of the agenda is a regulatory framework to rein in hedge funds, derivatives trading, executive pay and risk-taking. Nations remain divided about how much more stimulus is required to spur the global economy as well as about naming tax havens and how far to go in overseeing hedge funds.

“It’s not at all clear why Sarkozy and Merkel are making such a show,” said Morris Goldstein, a former economist at the International Monetary Fund and senior fellow at the Peterson Institute for International Economics in Washington. “On regulation, the differences really aren’t that big.”

Geithner’s Effort

U.S. Treasury Secretary Timothy Geithner wants to bring hedge funds, private-equity firms and derivatives markets under federal supervision for the first time. A new systemic-risk regulator would have power to force companies to increase their capital or cut their borrowing, and authorities would be able to seize them if they came unstuck.

“There is a very strong consensus for broader, stronger, higher standards so the world never faces a crisis like this again,” Geithner said in a Bloomberg Television interview yesterday. “The approach that all these countries are going to come together and support is that we agree on higher common standards for oversight.”

Protests are set to continue today after demonstrations yesterday in London’s financial center. Demonstrators clashed with police outside the Bank of England and broke into a Royal Bank of Scotland Group Plc branch. Police in riot gear, on horseback and with dogs moved in to surround demonstrators who smashed windows and entered an RBS branch.

Fine Print

Among the leaders, the effort to reach consensus may struggle over the fine print as the Europeans pressed for as many clear agreements as possible.

“It’s time to lay the foundations of regulation in the 21st century,” Sarkozy said, adding that tougher regulation is “non-negotiable.”

Merkel said several drafts of the summit conclusions are in circulation, and that work still needs to be done to clinch a final agreement.

Sarkozy said the summit draft doesn’t do enough to attack tax cheats and there must also be a “global decision” to crack down on traders’ bonuses. Another concern of the euro-area’s biggest countries was that not enough hedge funds will be subjected to oversight.

Last-Minute Fight

“In the current state of things, the proposals don’t suit France or Germany,” Sarkozy said on Europe 1 radio yesterday. “No agreement is secured. I know by experience that we will need to fight until the last minute.”

The disagreements may force the leaders to paper over differences with a watered-down agreement. U.K. Prime Minister Gordon Brown said yesterday that nations “must stand united in our determination to do whatever is necessary.”

Expectations “are being managed down,” Stephen Roach, Morgan Stanley’s Asia chairman in Hong Kong, said in an interview. “There seems to be no real appetite for the leaders to deal with the imbalances in a broader global economy or their own individual economies,” he said. “This is not going to be a breakthrough summit.”

The deepening slump has led to a split over how much governments need to spend to reverse the tailspin. Germany and France have led a European Union response that the 400 billion euros ($530 billion) the EU has approved should be enough and any more would drive debt too high.

The recession has worsened since the G-20 leaders last met in November in Washington.

Slump Forecast

The Organization for Economic Cooperation and Development said in Paris that the economy of its 30 members will contract 4.3 percent this year and predicted unemployment in the Group of Seven will reach 36 million late next year. The World Bank lowered its growth forecast for developing countries this year by more than half to 2.1 percent.

“The only thing I wish for is that all the presidents gathered here have the maturity to understand the every day that passes without a solution to the crisis, more people are going to suffer,” Brazilian President Luiz Inacio Lula da Silva told reporters after arriving in London.

G-20 members are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, South Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the U.S., the U.K. and the European Union. Officials from Spain and the Netherlands are also present.

To contact the reporters on this story: Edwin Chen in London at echen32@bloomberg.net; Tony Czuczka in London at aczuczka@bloomberg.net