G-7 finance ministers warn recovery ‘fragile’

ISTANBUL — Finance ministers from the Group of Seven rich countries warned the recovery remains “fragile” and tried to talk up the U.S. dollar amid fears it could fall farther and disrupt the global economy.

The officials said in their closing statement after meeting Saturday in Istanbul that decisive moves by governments had improved conditions for the world economy and financial markets.

But they warned against “complacency” since growth prospects remained “fragile” and unemployment continues to rise. Figures on Friday showed the U.S. economy shedding more jobs than expected in September, with unemployment at a 26-year high of 9.8 percent.

They agreed it was too soon to withdraw the stimulus measures such as government deficit spending and rock-bottom interest rates that have helped re-start growth.

U.S. Treasury Secretary Timothy Geithner said the United States will unwind the “extraordinary” policy measures it has taken only when conditions stabilize and growth strengthens.

“Planning for an eventual exit is the responsible and necessary thing to do, but we are not yet in the position where it would be prudent to withdraw fiscal and monetary policy support,” Geithner said.

“Exit will not be like flipping a switch,” he added.

The Federal Reserve has slashed its key interest rate to near zero percent and pumped over a trillion dollars into the markets to sustain liquidity and free up lending, while the Obama administration enacted a near $800 billion package of spending increases and tax cuts to prop up the economy.

Much of the rest of the world has done likewise and the result has been the faster than expected rebound in growth. Earlier this week, the International Monetary Fund raised its forecast for 2010 global growth to 3.1 percent from 2.5 percent just three months ago, largely because of these stimulus measures.

Though they refrained from mentioning the dollar’s recent slide in their joint statement, the ministers sought to talk up the U.S. currency, which has been falling fast over recent weeks. The dollar hit an eight-month low against the yen earlier this week, while the euro clambered up toward year highs.

A weaker dollar boosts U.S. exports but could undermine recoveries in countries that sell to the United States. Policymakers have warned that a dollar crisis is the last thing the world economy needs right now as it looks to recover from its deepest recession since World War II.

Geithner and France’s Christine Lagarde stressed the need for a strong dollar.

Geithner said it’s “very important for the U.S. that we continue to have a strong dollar,” while Lagarde said “we need to have a strong dollar … volatility is not welcome.”

The finance ministers’ statement did not mention the dollar’s role specifically but said that “excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

The ministers from the U.S., Japan, Germany, France, Britain, Canada and Italy met amid questions about the role of the G-7. It has been overshadowed recently by the Group of 20, which includes developing economic powerhouses such as China, India and Brazil.

Last week the leaders of the G-20 agreed that the bigger body would become the world’s “premier” economic decision-making forum.

There was no reference to the future of the G-7 in the communique Saturday, but France’s Lagarde dismissed talk of its death.

“The G-7’s existence is fully justified,” she said, though she confirmed future meetings may not yield a communique at their conclusion.

“It’s still important for us to talk on issues of economy and finance,” Lagarde said.

The only currency that was mentioned in the communique, as has become de rigeur in these statements, was the Chinese yuan, which is artificially set to the dollar by the Chinese authorities to keep exports cheap in U.S. markets.

Though the Chinese authorities have taken steps to allow their currency to rise against the dollar, it has not been far or fast enough for many.

The IMF has argued that it will be necessary for the yuan to rise as China will have to take up more of the slack left by the U.S., which has been living beyond its means for many years.

A higher yuan against the dollar is one way to make the Chinese consume more U.S. goods and for the U.S. to raise its exports, thereby bringing its massive current account deficit back toward balance.

“We reaffirmed the necessity for the Chinese currency to be appreciating,” said Lagarde.

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Associated Press Writers Christopher Torchia and Suzan Fraser contributed to this report.