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November 14, 2008

G-20 Summit
Japan to lend $100bn to IMF

Japan will propose to lend up to $100 billion to the International Monetary Fund at the financial crisis summit in Washington that begins Friday, as gloom spread over an imminent worldwide recession, reported AFP.

Japanese Prime Minister Taro Aso is set to propose the multi-billion dollar package to help boost emerging countries hit hard by the financial crisis, according to a statement issued by his office, while signs around the world pointed towards further downturns.

New US data released Thursday showed an alarming drop in trade, and Germany, the world's third largest economy, announced it had officially plunged into recession as output contracted for the second quarter running, by 0.5 percent in the third quarter, according to figures from the national statistics service Destatis.

In the United States, data showed a steep drop in both imports and exports, highlighting the slowdown in the world's biggest economy and a likely global recession.

The Commerce Department said the US trade deficit narrowed 4.4 percent in September to $56.5 billion. What normally would be seen as an improvement in the trade balance set off alarms with a record drop in imports and a plunge in exports.

"Trade can no longer prop up the US economy," said Peter Kretzmer, an economist at Bank of America in New York.

"If we look out over the next 12 months, both export and import volumes will drop -- meaning not just slower growth, but outright declines -- as the global recession reduces trade activity."

The news didn't stop Japan's Nikkei index from rising almost five per cent in morning trade. A powerful overnight trade, after a surging rally on Wall Street late Thursday, prompted the benchmark to climb 351.15 points to 8,589.79.

In Paris, the director of economic policy studies for the 30-nation OECD club of rich countries, Joergen Elmeskov, told media that "the OECD as a whole is currently in recession and will likely stay there for some time."

The Organization for Economic Cooperation and Development (OECD) forecast that the United States would suffer a huge 2.8 per cent contraction in the fourth quarter of this year and shrink 0.9 per cent in 2009.

The Capital Economics research group said as the German data was published that "the world economy is heading for the worst recession since the 1930s."

The European Union is expected to report the 15-nation eurozone's plunge into recession Friday, with a string of economic indicators pointing downwards and European governments struggling for a unified response.

France was widely expected to announce Friday that it, too, is in recession, and on Wednesday the Bank of England said the British economy was probably already there.

The Royal Bank of Scotland (RBS) said it is planning to cut some 3,000 jobs worldwide over the next few weeks, the BBC reported, despite it being one of the three high-street banks bailed out by the British government last month.

The Japanese economy, the world's second biggest, will be in recession at the end of 2008 and will contract 0.1 per cent in 2009, the OECD said.

US President George Bush said that world leaders will "lay the foundation for reforms" at the Washington talks, but said the effort was "too large" for just one summit of the Group of 20, which includes the big industrialized and emerging economies.

"This summit will be the first in a series," Bush said.

According to the OECD, major economies should recover to post modest growth in 2010. The United States will not start growing again until the third quarter of 2009, it said, calling for new government stimulus measures and steps to shore up financial markets.

But Bush said the global crisis was not "a failure of the free market system" and warned against seeing government intervention as "a cure-all."

German Chancellor Angela Merkel said in an interview she expects "difficult talks" at this weekend's G20 summit but said it was crucial that the first steps towards improved financial regulation are taken soon.

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