Good news waiting for G7 ministers

A surge of encouraging economic news has provided an unexpectedly encouraging background for the economic summit of Group of Seven finance ministers in Washington this weekend.

The meeting - postponed from September 28 after the terrorist attacks on the United States - has been seen as a potential launching pad for a campaign to rebuild global economic confidence.

That task remains to be done, but it has definitely been made easier by signs over the past few days that the gloom may have been overdone.

The good news, like the gloom, has mostly come from the US.

First, non-manufacturing figures for September - regarded as a key indicator of economic activity - surprised everyone by showing an increase.

Next, President George W. Bush proposed up to $75 billion in extra pump-priming for the economy.

Then on successive days two bellwether stocks, Cisco, the world's largest maker of web gear, and Dell Computer, the world's top personal computer maker, both said they were standing by their earlier forecasts.

Those four pieces of bullish news prompted rallies in US markets - especially in technology stocks - which spread around the world.

The tech-heavy Nasdaq enjoyed its largest percentage gain since April and closed at the highest level since September 10.

"I think it's becoming apparent that, barring another shock, the economy is not nearly as bad off as some feared it would be, and there will be recovery in the economy and earnings in 2002," said Milton Ezrati, senior economic strategist at Lord Abbett. "The market is responding to that."

The Dow is down 16 per cent this year, the S&P 500 is down 19 per cent and the Nasdaq composite has dropped 35.3 per cent.

The good news from the US allowed handset maker Nokia to lead a similar tech-inspired revival on European markets.

The Stoxx pan-European technology sector jumped 7.5 per cent, recouping all its post-September 11 losses, as Nokia's price jumped 11.5 per cent to levels last seen in late August.

The broader bluechip Eurotop 300 index rose 3.3 per cent to be only about 2 per cent short of its level before September 11.

Brokers were enthusiastic about the rally but wary of its depth.

"We have to be honest," said Lex Werkheim, technology fund manager at Eureffect in Amsterdam.

"This could well be just a bounce-back based on the fact the market was way oversold."

US Treasury Under-Secretary John Taylor offered similar cautious optimism when he gave a media briefing before the G7 meeting.

Mr Taylor said there was no doubt the September 11 attacks would affect US growth for at least two quarters and that it had harmed optimism.

"With respect to the economic situation more broadly, confidence is very important and building confidence and reassuring the public ... The economy is basically strong is very important."

There was no reason that productivity increases in the US and other countries, key to rising living standards, should not continue, he said, adding:

"Long-term growth has all the same kind of potential as we saw before the slowdown."

The G7 comprises the US, Britain, Canada, France, Italy, Japan and Germany. Russian finance officials also will participate in part of the talks, the first face-to-face meeting of the G7 ministers since the September 11 attacks.

The finance ministers held a telephone conference last week and will pick up from that discussion during the Saturday session at the US Treasury.

Mr Taylor said the meeting would enable ministers to compare notes on actions they had already taken to get the world economy back on track.

"What I think we need to keep stressing is that the fundamentals are really good and that the slowdown we've been seeing, and the acceleration of that slowdown, is a combination of the immediate effects of the terrorist attack that's already snapping back in the US," he said.

"It's a short-run thing that I believe we'll get over relatively quickly and then the question in terms of the long run is confidence - how much will confidence recover.

"I think confidence will rise once again as people become more secure about what the possibilities are, once the uncertainty is resolved."

Mr Taylor said US economic activity was bound to be harmed for at least two quarters.

The attacks occurred in the final month of the third quarter, so their main impact was bound to spill into the fourth quarter.

"Whether there's one quarter or two quarters where growth is substantially revised we're going to have to see," he said.

"I am optimistic ... that we should expect the economy to pick up next year and to see noticeably stronger growth through the course of next year."

- STAFF REPORTERS, AGENCIES