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IMF Chief Warns Nations Against Early Exit From Stimulus Packages

January 19, 2010 | "RTTNews"

(RTTNews) - International Monetary Fund (IMF) Managing Director Dominique Strauss-Kahn on Monday urged nations to continue with their stimulus packages aimed at rebuilding their economies hit by the recent global economic slowdown, warning that a quick exit from such economy rebuilding measures could risk setting off another downturn.

He urged leading economies to avoid exiting from their stimulus programs "too early" before private demand and improvement in the labor market becomes strong enough, warning that such actions could lead to another global downturn, or a so-called double dip recession that describes a return to recession after a brief period of growth.

"In most countries, growth is still supported by government policies. For as long as you do not have private demand strong enough to offset the need of public policy, you shouldn't exit." Kahn said in a news conference at the Foreign Correspondents' Club of Japan in Tokyo.

"If you exit too early, then you'll have the risk of going back into recession. If countries do exit too early and if we have a new downturn in growth, then, really, I don't know what we can do," Kahn said. "Our forecast at the IMF is not for a double-dip, but you never know, it may happen, and especially it may happen if countries exit too early."
Kahn warned that it would be tougher to tackle the effects of another possible recession, as many countries have already used up most of their resources to counter the recent global economic slowdown. He added that tackling high levels of government debt caused by recent economy rebuilding measures would be a top priority for many nations.

Noting that private sector demand is "still very weak" in most nations, Kahn said that the recovery was "stronger and faster" in Asian countries than what the IMF had forecast last autumn. He added that even the recovery in advanced economies has been "faster and has come sooner than expected," but warned that nations have to "remain very cautious because this recovery remains very fragile in many respects."

Pointing out that China and Asian economies are leading the recovery, Kahn suggested that the IMF would raise its growth forecasts for the global economy in 2010 from the earlier predicted 3.1% for the year. He, however, warned that jobless rates could rise in the U.S., Europe and Japan in the months ahead.

"China, India but also countries like Indonesia and Thailand -- many countries in emerging Asia -- are close to the rates of growth they had before the crisis," Khan said, suggesting that China would most probably exceed the 8.5 per cent growth forecast for this year. He also hinted that IMF's growth forecast for China in 2010 would be revised towards the 11.5% it had achieved in 2007.

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