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Europe’s recovery almost came to a halt in the fourth quarter of 2009 as companies continued to cut investment while consumers held back spending, countering a gain in exports.

Corporate investment dropped 0.8 percent from the third quarter, when it fell 0.9 percent, while household spending was flat, the European Union’s statistics office in Luxembourg said today. Exports gained 1.7 percent and imports rose 0.9 percent. Gross domestic product rose 0.1 percent from the third quarter, when it increased 0.4 percent.

European governments are struggling to contain the fallout from Greece’s budget crisis as they phase out the stimulus measures used to pull the economy out of a recession. Economic confidence in the region fell last month and unemployment held at an 11-year high in January. Still, the EU forecasts growth will accelerate in the first quarter.

“Today’s figures clearly demonstrate that the euro-region recovery is still very much made abroad and that private domestic demand has yet to recover,” said Martin Van Vliet, an economist at ING Group in Amsterdam. “We suspect that first- quarter growth might only be slightly better than the fourth quarter’s meager performance.”

The euro pared declines against the dollar after the data, trading at $1.3681 at 12:33 p.m. in London, down 0.1 percent on the day. The yield on the German 10-year benchmark bond rose 0.1 basis point to 3.14 percent.

Government Spending

From a year earlier, euro-area GDP declined a seasonally adjusted 2.1 percent in the fourth quarter, the statistics office said today, confirming an initial estimate from Feb. 12. Government spending fell 0.1 percent from the third quarter, when it increased 0.8 percent, today’s report showed.

For the full year, GDP shrank 4.1 percent, compared with an earlier estimate of 4 percent. That compares with contractions of 2.4 percent in the U.S. and 5 percent in Japan last year, the statistics office said.

The German economy, Europe’s largest, stagnated in the fourth quarter after recording 0.7 percent growth in the previous three months, while Italian GDP fell 0.2 percent. France’s economic expansion accelerated to 0.6 percent from 0.2 percent. In Greece, the economy contracted 0.8 percent in the fourth quarter.

European companies are relying on exports to bolster sales as households in the region cut back spending. Consumer and executive confidence in the outlook worsened in February after unemployment held at 9.9 percent in January, the highest since November 1998.

European Environment

Carrefour SA Chief Executive Officer Lars Olofsson said on Feb. 19 that he doesn’t “see any change in the European environment for the next six months at least” after Europe’s largest retailer reported a 70 percent drop in 2009 profit free credit score.

The European Central Bank will probably keep its benchmark interest rate at 1 percent today, according to a Bloomberg survey. The ECB, which has started to phase out some of its stimulus measures introduced to fight the recession, will release its decision at 1:45 p.m. in Frankfurt.

“The phasing out of some unconventional measures should not be misinterpreted as a desire to remove policy accommodation,” ECB council member Athanasios Orphanides said in an interview on Feb. 12. “Policy accommodation continues to be needed in light of the very subdued inflation outlook and the unevenness and weakness of the economy.”

EU Forecasts

While euro-region GDP is seen rising 0.2 percent in the current quarter from the previous three months, the economy may fail to gather strength for most of 2010, according to EU forecasts on Feb. 25. In the year, the economy will probably expand 0.7 percent after shrinking 4 percent in 2009, the EU projects.

Europe’s governments face a growing dilemma as they seek to bolster recoveries at a time when rising sovereign-debt burdens threaten to hobble economic expansion. The euro has declined 8.1 percent against the dollar over the past three months amid concern Greece’s budget crisis will spread to other countries.

Greek Prime Minister George Papandreou’s government yesterday approved an additional 4.8 billion euros ($6.6 billion) in deficit cuts after EU officials said the nation’s financial woes pose a threat to the entire region. The country, which has pledged to lower the budget gap beneath the EU limit of 3 percent of GDP by 2012, today started a sale of 10-year bonds amid street protests in Athens against the cuts.

‘Slow and Patchy’

“The recovery in the euro-area economy as a whole in 2010 will be slow and patchy,” said Colin Ellis, an economist at Daiwa Securities in London. “It is hard to see a strong engine of domestic growth in the euro-area economy, consistent with our view that exports may have to do the heavy lifting.”

While the euro’s slide against the dollar is boosting some raw-materials costs for companies, it’s also improving the competitiveness of European exports just as the global economy gathers strength. Europe’s service and manufacturing industries expanded for a seventh month in February.

Volkswagen AG, Europe’s largest carmaker, is facing a “strong headwind” in Europe and a “tailwind” in the U.S. and China, CEO Martin Winterkorn said on March 1. BASF SE, the world’s biggest chemical company, last month forecast higher earnings this year.

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A unit of Smith International Inc. has taken over a three-year contract with Petróleo Brasileiro, Brazil’s state-owned energy giant.

Houston-based Smith (NYSE: SII) will operate the Petrobras contract through its PathFinder Energy Services unit at its new facility in Macae, Brazil.

The deal represents possible revenue of between $80 million and $100 million business card design. PathFinder will also acquire all related directional drilling assets from San Antonio International do Brasil.

San Antonio International had previously been the lead contractor through which PathFinder had taken on contracts in that country, Smith officials said in a statement.

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The Toronto stock market closed lower Friday as strength in the greenback punished commodity stocks and Royal Bank lost ground even as the bank met expectations in its latest earnings report.

The S&P/TSX composite index dropped 125.75 points to 11,510.8, weighed down by a sharp decline in the gold sector. The TSX finished up 46.39 points, or 0.4 per cent, on the week

The U.S. dollar posted gains as the U.S. Labor Department said 11,000 people lost their jobs last month, far below the 120,000 that had been expected. The jobless rate came in at 10 per cent, down from 10.2 per cent in October.

"This may be the point where people really start to feel good about the economy and the people who have been calling for the sky to fall will start changing their mind," said Paul Thornton of Investor Boot Camp Online.

In Canada, 79,100 jobs were created last month while the unemployment rate moved down one-tenth of a point to 8.5 per cent in November, according to Statistics Canada. Economists had been looking for a drop in employment of 43,000.

The rising greenback reversed early Canadian dollar gains, with the loonie down 0.28 of a U.S. cent to 94.53 cents (U.S.).

Shares of Royal Bank fell $1.50 (Canadian), or 2 payday loans with no fax.6 per cent, to $55.98 after it reported its fourth-quarter profit rose 10 per cent from a year ago to $1.2 billion. Overall, the financial services sector in Toronto was down 0.56 per cent.

The Dow Jones industrial average closed up a slight 22.75 points to 10,388.9 – for a gain of 78.98 points or 0.77 per cent this week – as the latest sign of economic strength raised worries about higher interest rates. The Nasdaq composite index climbed 21.21 points to 2,194.35, while the S&P 500 index rose 6.06 points to 1,105.98 as U.S. markets also suffered from lower commodity stocks.

The gold sector was a major weight on the TSX, down 5.5 per cent as the February bullion contract on the Nymex lost $48.80 (U.S.) from its most recent record close to $1,169.50 an ounce.

The TSX energy sector dropped 0.76 per cent as the December crude contract on the New York Mercantile Exchange fell 99 cents to $75.47 a barrel. The decline followed two days of losses resulting from a report Wednesday that showed a big build-up in crude inventories in the U.S. last week.

The Canadian Press

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In an aggressive effort to highlight their growth and health at a time of challenge for all publishers, Houston Business Journal and the 39 other papers in the American City Business Journals group this week took a novel approach to tell their story: All 40 business journals printed a four-page “wrap” around their papers filled with statistics and testimonials from readers in their local markets, detailing the niche their papers fill in each of their communities.

The testimonials highlighted ways that their papers have connected them to new sales, new jobs and new ways to grow their businesses, and most recently, ways to tap government stimulus dollars. The national campaign cites statistics that include recent numbers for paid circulation, time spent reading business journals and event attendance.

Collectively, the papers grew circulation by 3.85 percent between 2005 and 2009 while daily newspapers in those same markets lost 29 percent; from 2007 to 2009 alone, the ACBJ circulation growth totaled 2.7 percent, according to figures tallied by the Audit Bureau of Circulations.

Nationally, ACBJ readers spend an average of 50 minutes reading their local business journal each week, according to media audits.

And through 2009, about 175,000 business leaders have attended business journal events across the country.

The campaign has linked the papers together under a single message that asks, “Who Do You Want To Meet Today?” That message centers on the way each paper connects business leaders with each other, via print, in person, at events, or online through the bizjournals paydayloans.com network of local business journal sites.

ACBJ newspapers reach 4 million readers each week with in-depth coverage of their business communities. ACBJ cites recent research as evidence of the sweet spot it occupies in the media: 83% of all business news is local. Further, the company attributes it commitment to exclusive, top-quality journalism as vital to its success.

“No one in the local business community is more connected, more aware, more in touch than business journals are,” said ACBJ CEO Whitney Shaw, in a Q&A offered in each paper’s four-page wrap. “We're giving vital, up to the minute information to corporate executives, small business owners, community leaders, to virtually anybody who has a stake in the economy. And we're giving that information with a depth they can't get anywhere else.”

ACBJ is a unit of Advance Publications Inc., which also operates Conde Nast Magazines, Parade magazine, Fairchild Publications, the Golf Digest companies, Newhouse Newspapers and cable television interests.

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U.S. department store operator Macy’s Inc forecast earnings for the fourth quarter, which includes the crucial holiday shopping season, far below Wall Street expectations on Wednesday, sending shares down 8.1 percent.

“The falls in same-store sales were less dramatic than they could have been, and there are consumers shopping,” said Leah Hartman, an analyst with CRT Capital Group. “Expectations might have gotten a little ahead of themselves.”

Macy’s is the first major U.S. department store chain to report financial results this week. The others include: JC Penney Co, Nordstrom Inc and Kohl’s Corp.

On a call to analysts, Chief Financial Officer Karen Hoguet warned that the economy made forecasts more challenging.

“There is more uncertainty than usual in the environment,” she said.

Macy’s forecast same-store sales, or sales at stores open at least a year, to fall between 1 percent and 2 percent in the fourth quarter.

It also said it expects fourth-quarter earnings of $1 to $1.05 per share. Wall Street analysts had expected earnings of $1.17 per share, according Thomson Reuters I/B/E/S.

The company did improve its outlook for full-year same-store sales, forecasting a decline of 5.4 percent to 5.7 percent, compared to an earlier forecast for a decline of 6 percent to 8 percent payday cash advances.

Analysts said Macy’s efforts to keep inventories lean resulted in fewer markdowns, better sales and improved gross margins. Macy’s gross margin rose to 40.2 percent from 39.5 percent a year earlier.

3RD QUARTER BEAT

In the third quarter, Macy’s net loss narrowed to $35 million, or 8 cents a share, from $44 million, or 10 cents a share, a year earlier. Excluding one-time items such as $33 million in restructuring costs, its loss was 3 cents a share.

Last year, the retailer restructured itself under its “My Macy’s” program, designed to help the chain focus on local tastes and reduce head office expenses and duplications. So far in 2009, the company has spent $205 million on its restructuring.

Macy’s said sales fell 3.9 percent to $5.28 billion in the third quarter.

Analysts, on average, had been expecting a loss of 7 cents per share and sales of $5.25 billion, according to Thomson Reuters I/B/E/S.

The Cincinnati-based chain said losses had narrowed on the strength of its Bloomingdale’s stores and online sales, which rose 21.1 percent during the quarter. 

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A key measure of consumer confidence continued to slip in October, with consumers’ gauge of the current economic situation falling to a 26-year low, a research group said Tuesday.

The Conference Board, the New York-based research group said its Consumer Confidence Index fell to 47.7 in October from an upwardly revised 53.4 in September.

Economists were expecting the index to increase to 53.5, according to a Briefing.com consensus survey. The figure, which is based on a survey of 5,000 U.S. households, is closely watched because consumer spending makes up two-thirds of the nation’s economic activity.

The index component that evaluates consumers’ judgment of the present situation dipped to 20.7 in October, the lowest since the 17.5 measured in February 1983. It stood at 23 in September.

"Consumers’ assessment of the present-day conditions has grown less favorable, with labor market conditions playing a major role in this grimmer assessment," said Lynn Franco, director of the Conference Board Consumer Research Center.

Employers continued to cut jobs from their payrolls in September, as the unemployment rate rose to 9.8% and hit another 26-year high in September, according to a report from the Labor Department earlier this month.

The percentage of those claiming that jobs are currently hard to get reached new high of 49.6%, while the number of consumers claiming that jobs are "plentiful" hit a new low at 3.4%.

"It is surprising how uniformly weak this report was," said Mark Vitner, an economist at Wells Fargo. "The expectations had gotten ahead of themselves. Everyone thought that economy would follow the rebound in the stock market. But now that the rebound has leveled off, folks doubt whether conditions will get better savings account payday advance."

Recovery isn’t near for consumers. The expectation index, which measures consumers’ outlook over the next few months, declined to 65.7 from 73.7 last month. Similarly, the percentage of those expecting the job market to improve edged lower to 16.3% from 18%.

The number of consumers expecting their incomes to increase also fell to 10.3% from 11.2%, suggesting that shoppers will likely limit their holiday spending, said Franco. The average amount consumers spend on holiday-related shopping will drop by $22.27 to $682.74, said the National Retail Federation in a report last week.

The outlook for business conditions also grew more pessimistic in October, with the percentage of consumers expecting conditions to worsen climbing to 18.3% from 14.6%.

The overall index remains at historically low levels. A reading above 90 indicates the economy is solid, and 100 or above signals strong growth.

Vitner expects the main index to hover around 50 for the next several months.

"We need to see a real improvement in employment conditions. Layoffs need to stop rising and hiring needs to pick up," he said. "The soonest that we think that consumers’ confidence will see a sustained rise would be late spring of next year."

Economists predict GDP, the broadest measure of economic activity, rose at an annual rate of 3.2% in the third quarter of this year after a 0.7% drop in the second quarter. The government will release its advance third-quarter GDP report Thursday. 

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Demand for hand sanitizer has gone through the roof since the first cases of swine flu broke out earlier this year, and some makers of the germ-fighting gels are scrambling to keep up.

Market research firm Panjiva recently estimated that 3 million kilograms of hand sanitizer were shipped in the third quarter, compared with 1 million kilograms in the same quarter last year.

Josh Green, chief executive of Panjiva, said concern about the H1N1 virus, also known as the swine flu, is the "most likely explanation" for the surge in volume.

And demand is only expected to rise given the outlook for an exceptionally bad flu season.

In response, the companies that make and distribute Purell, the most popular name-brand hand sanitizer, are ramping up production and urging customers to not hoard the product.

Heavy demand

Johnson & Johnson (JNJ, Fortune 500), which makes Purell and distributes it to retailers, does not provide figures on sales or shipments of items such as hand sanitizer. But the company said demand for Purell has been "heavy" since the first cases of swine flu broke.

"Due to the influenza A (H1N1) virus outbreak this past spring and resurgence this fall, Johnson & Johnson Consumer Companies Inc. has experienced heavy demand on supplies of Purell," said J&J spokesman Marc Boston in a statement.

The company is working to increase production for the remainder of the year and the beginning of 2010, but Boston acknowledged that supplies may be limited in some areas.

"Because of this increase in demand, consumers may currently find limited supplies of Purell Instant Hand Sanitizer at certain retailers," he said.

Don’t stockpile

GOJO Industries, the company that invented Purell and distributes it in professional markets, described the increase in demand as "unprecedented."

The Akron, Ohio-based company said it has been running its plants "24/7" and has hired additional workers to help increase output.

"Even with increased manufacturing capacity, there is a limit to how much we can produce in a short period of time," Mark Lerner, GOJO’s chief operating officer, said in a prepared statement.

GOJO said it will provide U.S. distributors with more than their normal supply of Purell, but warned that it may not ship the full quantity ordered.

Lerner said the backlog is temporary and that GOJO expects to increase overall production "significantly" through 2010. "There is absolutely no need to stockpile product," Lerner said. "In fact, stockpiling could cause an actual shortage which, in turn, could threaten public health."

Nearly 400,000 people worldwide have contracted laboratory-confirmed cases of swine flu and more than 4,700 people have died from the illness since it was first identified in Mexico and the United States in April, the World Health Organization (WHO) said earlier this month.

Many countries have stopped counting individual cases, particularly of milder illness, according to the WHO. That means the total case count could be significantly lower than the number of swine flu cases that have actually occurred. 

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The Obama administration will soon order the nation’s biggest bailed-out companies to drastically cut the pay packages of 175 top executives, a senior administration official confirmed to CNN Wednesday.

Kenneth Feinberg, who was named the White House’s pay czar in June, will demand that each of the seven largest bailout recipients lower the total compensation for their top 25 highest paid employees by 50%, on average, the official told CNN.

For the past two months, Feinberg has been reviewing pay plans at Citigroup (C, Fortune 500), AIG (AIG, Fortune 500), Bank of America (BAC, Fortune 500), General Motors, Chrysler, GMAC and Chrysler Financial in an effort to put these firms in a position to pay back bailout money as soon as possible.

Under the plan, which is expected to be officially released by the Treasury Department next week, annual salaries for executives at those seven firms are expected to fall 90%, on average, the official said.

Another source in the Treasury Department told CNN that Feinberg is "trying to strike the balance" between protecting taxpayers and allowing companies to have the ability to "grow their way out of TARP."

Some compensation experts have worried that the firms that have received the most bailout funds could wind up losing top talent to companies that have already paid back the government and are not subject to Feinberg’s pay restrictions, such as JPMorgan Chase and Goldman Sachs.

According to other reports, the plan will come down particularly harsh on embattled insurer AIG. Within AIG’s controversial Financial Products division, the unit that led to the company’s near collapse, no employee is expected to receive more than $200,000 in total compensation, several reports indicated.

The Wall Street Journal also reported Feinberg is expected to demand a series of governance changes at the seven firms — including splitting the role of chief executive officer and chairman.

The Treasury Department had no comment. AIG, Bank of America, Chrysler Financial and GM also declined to comment. Chrysler, Citigroup and GMAC were not immediately available for comment.

But the moves by Feinberg should not come as a major surprise. Last week, outgoing Bank of America CEO Ken Lewis said he would not accept a salary or bonus for 2009, and the bank said the decision came after Feinberg "suggested" it to Lewis.

Lewis’ decision followed an uproar over indications that he is poised to walk away with a minimum of $53 million in pension benefits after he retires.

Lewis’ cash salary has been $1.5 million annually since he took over as CEO in 2001. But he actually made $63 million in pay and perks over the past three years, according to filings — including almost $10 million last year.

Other high-profile CEOs have also taken it upon themselves to act before the government did. Citigroup chief Vikram Pandit, for example, declared earlier this year that he would accept pay of just $1 a year and no bonus until his firm returned to profitability. Just a year ago, Pandit took home $10.8 million in salary, stock and options.

CNN’s Jessica Yellin, Gloria Borger, Miguel Susana, CNNMoney.com’s Jennifer Liberto and Fortune’s Colin Barr contributed to this report.  

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Argentina will be forced to default by 2011 unless the government reaches an accord with investors holding $20 billion of bonds kept out of the last restructuring offer, Stone Harbor Investment Partners says.

President Cristina Fernandez de Kirchner is negotiating terms of an agreement, which the government needs to regain access to international capital markets that it lost after stopping payments on $95 billion of debt in 2001. Since then, Argentina has relied on local markets and loans from Venezuela to meet financing needs, and seized about $24 billion of pension fund assets last year to compensate for falling tax revenue.

“They’ve got to get things straightened out — they need to do that now,” said Jim Craige, who manages $10 billion of emerging-market debt at Stone Harbor in New York and owns Argentine securities, including some of the defaulted bonds.

Argentine credit-default swaps also point to concern among investors. Traders demand 1.7 percentage points more to protect the country’s debt against default for two years than one, up from 1.35 points two months ago and the widest gap among major Latin American countries, according to data compiled by CMA Datavision. The one year-two year gap on Venezuelan debt — the country with the closest borrowing costs to Argentina in the region — is 0.26 percentage point.

A basis point equals 0.01 percentage point, which is equivalent to $1,000 a year on a contract protecting $10 million of debt. Credit-default swaps pay the buyer face value if a borrower defaults in exchange for the underlying securities or the cash equivalent.

‘Not Sustainable’

Argentina’s financing requirements jumped to $10.7 billion this year from $5.9 billion in 2008, prompting Fernandez, 56, to extend local debt maturities and turn to government agencies, state-run Banco de la Nacion and the central bank for funds, according to Credit Suisse AG. Borrowing needs will decline to $8.2 billion next year before rising to $10.2 billion in 2011, Credit Suisse estimates.

Banco de la Nacion, which lent the Treasury 1 billion pesos ($261 million) in July, is authorized to provide the government as much as 7.3 billion pesos. Argentina has issued 4.2 billion pesos of debt to state agencies this year, according to the Economy Ministry.

“You cannot live forever doing this,” said Sebastian Briozzo, an analyst in Buenos Aires with Standard & Poor’s, which rates Argentine foreign debt B-, or six levels below investment grade. “At some point you will run out of local sources of financing. It’s not sustainable.”

A spokesman for the Economy Ministry didn’t return telephone calls seeking comment low fee pay day loans.

‘Muddling Through’

Cathy Elmore, who manages $500 million in emerging-market assets at Blackfriars Asset Management, said the country has proven more resilient than she expected while it’s been cut off from international markets.

“They’ve done a good job muddling through,” Elmore, who holds Argentine securities, said in a telephone interview from London. “I’m surprised they’ve been able to carry on for so long. They’ve plundered much of the resources available to them locally.”

Lawsuits from investors such as billionaire Kenneth Dart who kept their bonds out of the 2005 agreement are blocking the South American country from selling debt overseas.

Nestor Kirchner, Fernandez’s husband and predecessor, paid investors 30 cents on the dollar in 2005, the harshest government debt restructuring since World War II, according to Arturo Porzecanski, an international finance professor at American University in Washington. About 25 percent of creditors rejected the offer.

Bonds Rally

Economy Minister Amado Boudou told reporters in Buenos Aires on Sept. 21 that the government was talking with investors in search of a “definitive strategy” for the defaulted debt. The bonds trade at 38.5 cents on the dollar, up from 15 cents in June, according to London-based Exotix Ltd., a brokerage that specializes in distressed securities.

The extra yield investors demand to own Argentina’s dollar bonds instead of U.S. Treasuries narrowed to 6.47 percentage points, the smallest gap in 14 months, from 9.62 points at the end of July, according to data compiled by JPMorgan Chase & Co.

A restructuring “would change things dramatically,” said Craige. “It will give them the ability to access capital markets. There will be a normalization of the credit curve.”

Moody’s Investors Service said Oct. 8 that a restructuring may “improve the outlook” on the country’s B3 foreign debt rating, which is also six levels below investment grade.

Without such an accord, the government “would have severe trouble,” Elmore said. “There’s only so much muddling through they can do.”

Markets

Argentina’s peso gained 0.3 percent last week to 3.8288 per U.S. dollar. The Merval stock index advanced 7.1 percent to 2,169.04.

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Conservative leader David Cameron’s suggestion that the Bank of England end its asset purchases soon was criticized by two former central bank officials, a setback to the opposition’s effort to build credibility on the economy.

David Blanchflower, who left the bank’s Monetary Policy Committee in May, said Cameron’s speech yesterday was “bizarre” and if put into practice may tip the U.K. into a “depression.” Shamik Dhar, a former Bank of England economist, said “at best this is wrong and at worst downright dangerous.”

Without mentioning the central bank, Cameron told his party’s conference in Manchester that he opposed creating money, saying “sometime soon that will have to stop, because in the end, printing money leads to inflation.”

Prime Minister Gordon Brown’s government has authorized the Bank of England to purchase 175 billion pounds ($278 billion) in securities to help pull the economy out of its deepest slump since World War II. While the program will be wound down as the economy recovers, most economists say it has been necessary.

“I’ve been quite a critic of the Bank of England’s tactics in printing money, but the principle is a very good one,” said Steven Bell, chief economist at London-based hedge fund GLC Ltd. and a former U.K. Treasury official. “It has lowered bond yields and improved prospects for economic recovery.”

The yield on the 10-year U.K. government bond was 3.35 percent yesterday, compared with 3.64 percent on March 4, the day before the effort started.

Suggesting Reversal

Bell said Cameron’s remarks suggested that the Conservatives may reverse the policy if they win the election, due by June 2010, and that the comments were “unhelpful and surprising.”

After 12 years in opposition, the Conservatives are attempting to gain credibility as an alternative to Brown’s Labour government, which has trailed in polls since January 2008. At the party gathering, Cameron and his aides set out what they called a “painful” austerity plan to curb record debt, built up to revive growth.

Aides to Cameron and George Osborne, the Conservative lawmaker who speaks on finance, said the leader didn’t shift the party’s policy. The Conservatives have previously supported the central bank asset purchases.

They also proposed increasing the retirement age, freezing the wages of 4 million government workers and cutting spending by 7 billion pounds to shrink “big government.” There is “a steep climb ahead, but I tell you this: the view from the summit will be worth it,” Cameron said.

Blanchflower’s Concern

Blanchflower said it’s wrong to cut spending and shrink the size of the state before economic recovery is firmly rooted.

“Talk of repaying the debt, if you like, is fine in a boom, but not in the depths of the greatest recession we’ve seen in our lifetime,” Blanchflower said in a separate interview with Bloomberg Television yesterday. “It’s all about timing. Clearly you need to control the debt, but now? I don’t really think so.”

The British economy will contract 4.4 percent this year before expanding 0.9 percent in 2010, the International Monetary Fund predicts. The central bank forecast in August that inflation, which is now at the lowest level since 2005, will struggle to return to the 2 percent target in two years on line pay day loans.

Cameron’s remarks about the central bank are unlikely to register with voters, though attacks on his economic credibility might, said Andrew Hawkins from ComRes Ltd., a polling company.

‘Weakest Flank’

“I don’t think people have understood Cameron’s economics and it is his weakest flank,” Hawkins said.

Rick Nye, a pollster at Populus Ltd., said Cameron’s message about the economy is more likely to seep through.

“What Cameron wanted to do was reinforce the message that it’s time for a change and lay down a marker for the kind of government the Conservatives would be and the kind of prime minister he would be,” Nye said. “He did that pretty well.”

Brown’s Chancellor of the Exchequer Alistair Darling reiterated his critique of the Conservative economic plan, saying the economy remains fragile enough that his stimulus program is necessary.

“If we stopped supporting the economy now it would crash,” Darling said. “Every country in the world and just about every informed commentator is saying the same thing. The job is not finished. The Tories have been wrong at every turn.”

Blanchflower said Cameron’s program was “the most wildly dangerous thing I have seen in a hundred years of economic policy in Britain.”

‘No Understanding’

The economist from Dartmouth College in Hanover, New Hampshire, who was among the first to urge the central bank to stimulate the economy, said the Conservatives showed “no understanding of economics. It could drive the economy into depression.”

Dhar, now an economist at Fathom Financial Consulting in London, said that the central bank’s asset-purchase program, known as quantitative easing, should continue as long as institutions hoard cash and ration loans.

“Obviously, you have to stop QE at some stage, but this sounds like he’s ideologically opposed to it,” Dhar said. “It’s only ideologues that want to cut it off.”

Cameron didn’t mention the Bank of England’s program by name or make an explicit remark about what the Treasury’s policy toward asset purchases would be if he took office. Instead, he talked generally about the risks of the government running a deficit and “printing money” to bolster debt markets.

The central bank said yesterday it would spend to the limit of its program and evaluate whether to seek authority to make more purchases in November. While Governor Mervyn King has said the program will be wound down as the economy recovers policy makers will decide next month whether to extend it.

“Printing money will lead to inflation when you’ve got an economy running with no spare capacity, but that’s not the case now,” said Peter Dixon, an economist at Commerzbank AG in London. “We could print money without inflation for some time to come. Now is not the time to take back unconventional stimulus measures, that’s a long way down the road.”

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