G8 statement: economy stabilising, recovery uncertain

By Francesca Landini and Valentina Za

LECCE, Italy (Reuters) - The world's rich nations believe their economies are stabilising but recovery from the credit crisis remains shaky, Group of Eight finance ministers said in an end of meeting statement on Saturday.

"There are signs of stabilisation in our economies, including a recovery of stock markets, a decline in interest rate spreads, improved business and consumer confidence," the statement said.

"But the situation remains uncertain and significant risks remain to economic and financial stability," the ministers said in the communique after the two-day meeting in southern Italy.

The ministers confirmed they had started to consider ways to unwind economic rescue measures once a recovery was certain. The International Monetary Fund was asked to analyse possible "exit strategies" from radical stimulus programmes.

The G8 wants to reassure nervous bond markets, which have been pushing yields up sharply because they fear heavy state spending and ultra-low interest rates could fuel inflation and cripple state finances.

But the ministers, noting that unemployment might continue to increase even after production picked up, made clear that countries were unlikely to tighten policies any time soon.

"We must remain vigilant to ensure that consumer and investor confidence is fully restored and that growth is underpinned by stable financial markets and strong fundamentals," they said, pledging more stimulus if needed.

In one possible sign of divisions among the G8 over how to handle the crisis, the communique made no explicit reference to "stress tests" of banks' financial health, merely saying nations would take needed actions to ensure the soundness of big banks.

The United States and Canada have been pressing Europe to do more to test their banks and to release the results, but some European nations have resisted disclosure.