Welcome to Britain: World leaders gather as economic skies darken

Latest barometer of global economic situation casts ominous shadow over start of G20 summit in London as Gordon Brown battles to convince sceptical nations of need for further stimulus to pull world out of recession

Gordon Brown will appeal to the world's richest nations tomorrow not to close the door to stimulating their economies further to ensure the world pulls out of recession.

As the G20 leaders including Barack Obama arrived in London last night for their historic summit, the scale of the crisis confronting them was illustrated by a gloomy new forecast from the Paris-based Organisation for Economic Co-operation and Development (OECD).

It warned of "economic haemorrhaging" and a "bleak scenario" in which unemployment will rise to 36 million as a result of the "deepest and most synchronised recession in our lifetimes". The 30 most advanced economies in the world will see a slump in GDP of 4.3 per cent in 2009; the IMF says the world economy as a whole will shrink by 2.7 per cent, the worst decline in 60 years.

The OECD said international trade was "in free fall", down 13 per cent this year, with especially grim consequences for those nations most dependent on exports and manufacturing. Japan is at the bottom of the major economies' growth league, with an astonishing decline of 6.6 per cent in GDP this year.

Germany, the OECD predicted, will see a contraction of 5.3 per cent this year – by far the worst in the federal republic's 60-year history. German unemployment has jumped to 3.5 million, a jobless rate of 8.1 per cent, compared to 6.5 per cent in Britain.

The American economy, said the OECD, will contract by 4 per cent, France by 3.3 per cent and the UK by 3.7 per cent – which would be the worst year for economic growth since 1931. The OECD warned that Britain's soaring deficit would hamstring the potential for a further boost unless a "credible" framework for restoring public finances was set out. "The room for additional fiscal manoeuvre to respond to worse-than-expected activity developments is therefore limited and new measures would need to be accompanied by detailed and credible fiscal consolidation plans, in order to ensure that confidence is not eroded," it said.

The World Bank President Robert Zoellick warned of a "dangerous year" ahead. He announced an extra $50bn (£35bn) of finance for world trade, which is in short supply after the credit crunch.

Although European countries, led by Germany and France, have wrecked any hopes of the London summit approving an immediate fiscal stimulus, Mr Brown is confident countries will do more to boost spending and cut taxes in the next few months. "The summit should be judged in four months," one British government source said.

The Prime Minister hopes Germany may move by May, with France following suit later in the year. Yesterday, Japan gave the Prime Minister an eve-of-summit fillip when it announced plans for its fourth stimulus package, which could be worth $600bn. "Japan's economy is still in a situation that can be described as a 'crisis'," said Taro Aso, the Japanese Prime Minister.

Mr Brown wants a firm declaration that the leaders will take whatever action is necessary to restore growth, and an agreement that the International Monetary Fund (IMF) will consider the need for further action.

The latest draft of the communiqué for the G20 summit includes stronger language about a stimulus than previous versions. "It is getting better," said one British minister involved in the summit preparations last night.

Today Angela Merkel, the German Chancellor, and Nicolas Sarkozy, the French President, are expected to put on a united front against immediate action when they hold a joint news conference in London. Symbolically, the two leaders most in favour of a further stimulus – Mr Brown and Barack Obama – will also share a platform after talks in Downing Street this morning.

M. Sarkozy is demanding that top priority is given to tougher new rules for the financial system to prevent a repeat of last autumn's crisis. But he wants to go further than the US administration and Mr Brown, as the summit chairman, is trying to broker a compromise.

The French President is warning that he could walk away from the summit without signing the communiqué if he does not achieve his demands. Christine Lagarde, the French Finance Minister, told the BBC yesterday that M. Sarkozy would not sign any agreement if he felt "the deliverables are not there".

British officials believe that M. Sarkozy and Ms Merkel will not want to be accused of wrecking the conference. They suspect the French President has launched a pre-summit broadside to grab a share of the limelight. "He clearly wishes he was chairing it," one said.

Jose Manuel Barroso, the European Commission President, who will attend the summit, played down expectations. "We don't expect miracles," he said. "The G20 will not end this crisis overnight. But it can and must make a difference." He said the world had a "unique opportunity to re-shape globalisation". He said more summits will be needed on the economic crisis including at least one more this year, because "this is a process".

Mr Brown said yesterday: "Leaders meeting in London must supply the oxygen of confidence to today's global economy and give people in all of our countries renewed hope for the future." Speaking at St Paul's Cathedral, he called for the "values that we celebrate in everyday life" to be brought to the financial markets. "I believe that unsupervised globalisation of our financial markets did not only cross national boundaries, it crossed moral boundaries too," he said.

He was speaking alongside the Australian Prime Minister, Kevin Rudd, who warned that the global economic crisis was having a devastating effect on developing countries. "This is the unseen cost of the crisis, the invisible face of the global recession," he said. "But in conscience we cannot stand idly by."

What Gordon wants. And what he'll get...

FISCAL STIMULUS

What he wants: Sympathetic to Barack Obama's call for countries to boost spending and cut taxes to stimulate growth, but must referee dispute with more cautious Germany and France.

What he'll get: No immediate boost, but commitment by leaders to whatever is necessary to pull out of recession. IMF to keep position under review.

*BANKING SYSTEM

What he wants: Curbs on tax havens; common principles for pay and bonuses to reward long-term performance, not risk-taking; hedge funds to be regulated; early warning system.

What he'll get: Able to claim system will be "cleaned up" as a result of the summit. But US may be reluctant to go as far as some countries would like.

TRADE

What he wants: Strong commitment to "open markets" and pledge not to resort to "beggar thy neighbour" protectionism. World Trade Organisation to "name and shame" back sliders.

What he'll get: $100bn trade finance fund. Warm words, but doubts about whether countries will stick to them.

IMF

What he wants: Pledge to at least double the budget of the IMF to $500bn.

What he'll get: Last-minute negotiations could triple IMF budget.

SUSTAINABLE RECOVERY

What he wants: Promise to ensure "low-carbon recovery".

What he'll get: Real decisions put off until Copenhagen summit in December.

TIMETABLE

Today's events

Gordon Brown and President Barack Obama hold talks in 10 Downing Street, followed by 10am joint press conference.

4pm President Obama meets Russian President Dmitry Medvedev, China's President Hu Jintao and the Queen.

6pm G20 leaders meet for a drinks reception hosted by the Queen at Buckingham Palace.

8.30pm G20 leaders convene for dinner, which is to be held in the State Dining Room at 10 Downing Street and will be hosted by Gordon Brown.

Tomorrow

7.30-8.25am Leaders arrive at ExCel.

8.30am Leaders and finance ministers have separate working breakfasts.

10am Leaders' "family photograph".

10.20am– 1pm Opening session.

1- 2.30pm Leaders and finance ministers have separate working lunches.

2.30-3.30pm Afternoon session.

3.30-4pm Closing press conference.

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