global investment growth is likely to remain negative well into 2010. this will serve as a significant drag on global growth and can be expected to reduce potential growth in most major economies. see " way out of economic and financial crisis : lessons and policy actions, " masaaki shirakawa, governor of the bank of japan, speech at japan society, new york. 23 april 2009. declining investment and stagnant consumption will mean that private demand, excluding that generated by tax stimulus, will remain weak until the middle of 2010. in the united states, china, and japan, growth will likely be positive in the third quarter of 2009, but largely owing to massive fiscal expenditures and tax cuts. self - sustaining private demand in most major economic areas is not yet imminent. the g - 20 strategy is to enact extraordinary fiscal stimulus to offset financial headwinds and to bridge the gap until the end of the stock adjustment process and the restoration of private demand. its success depends on three interrelated factors : the scale of the private savings response ; the magnitude, duration, and credibility of the fiscal response itself ; and the eventual rebalancing of risk between the public and private sectors. let me address each of these factors in turn. the evolution of private and public savings one of the biggest imponderables is the outlook for household savings rates. in the run - up to the crisis, households increasingly " saved " through capital appreciation rather than from current income. a decline of roughly 30 per cent in u. s. wealth has caused household savings rates to rise sharply from nearly zero between 2005 and 2008 to 4 per cent in the first quarter of 2009. the new equilibrium of household savings will depend on multiple factors, including wealth effects, risk aversion, the evolution of the financial system, and crucially, the credibility of fiscal policy itself. the surge in private savings is being offset by a rise in public dissaving. the world is well on its way to spending an average of 2 per cent of gdp in discretionary fiscal measures. simultaneous fiscal action means that spillovers across countries offset each other to some degree, thereby limiting net leakage and maximizing the overall impact. in addition, the current global concentration on infrastructure spending provides some support for commodity prices. but there are limits to everything, including fiscal policy. across the g - 7 this year, the average deficit will be 12 per cent of gdp. global public borrowing requirements will be two times greater than last year

characterized by significant stock adjustments in the financial and real sectors of major industrialized economies. a key lesson of japan's lost decade is that an economy will not grow until the excesses that built up during the bubble have been removed. 6 in japan, these included commercial real estate, physical capital, and a highly leveraged corporate sector. financial imbalances and losses from a deteriorating economy quickly overwhelmed the capital buffers of the japanese banking sector. the resulting negative feedback loop between the real and financial economies took nearly a decade to break. there are some striking parallels in the united states. earlier this decade, there was substantial misallocation of investment ( much of which was financed from abroad ) into private real estate. in addition, key industries such as autos invested in capital stock that became increasingly misaligned with prospective demand. there are also important differences. unlike japan, excess debt in the united states is concentrated in the household and financial sectors, and the deleveraging of the financial sector was a trigger rather than the result of the recession. with u. s. banks now raising significant capital to cushion their losses, the negative feedback loop between the financial and real economies has been slowed, though not yet reversed. more capital will be required globally ; the toxic assets in core banks still need to be addressed ; and a host of vital financial markets, such as private - label securitization, must be relaunched. as a result, stabilization of the global financial system remains a precondition for a sustainable recovery, both globally and in canada. this process of financial stock adjustment is mirrored by an adjustment process on the real supply side of the economy. in the last quarter of 2008, it became clear that levels of inventories, employment, and capital were not commensurate with the level of global demand. each, in turn, fell roughly in the sequence one would expect, given relative adjustment costs : first, inventories ; next, employment, which is quasi - fixed ; and last, capital, as investment fell below the rate of replacement. although global demand and trade levels appear to be approaching bottom, and inventory and labour adjustments have already been substantial, there is still more to come. unemployment will likely rise further across the g - 7, with the sharpest increases still to come in those economies with the least - flexible labour markets. uncertainty over the employment outlook will weigh on consumption in most major economies for some time. the capital stock adjustment process will take longer, and