IMF Head: World Economy 'Not Out of the Woods'

Monday, 05 Apr 2010 08:49 AM

International Monetary Fund head Dominique Strauss-Kahn says the world economy was not "out of the woods" despite a faster recovery in developing and emerging countries than earlier forecast.

He told reporters during a Sunday visit to Amman that although global recovery was "resuming sooner than expected, private demand was still not strong enough to signal the end of the prolonged recession experienced by the world economy."

He said "you see growth resuming almost everywhere but that almost everywhere these growth figures are related to public support and private demand remaining rather weak and not strong enough."

He said "until private demand is sustainable to provide growth it will be difficult to say the crisis is over."

The IMF sharply raised its estimates back in January, predicting that the world economy would expand by 3.9 percent in 2010, much higher than the 3.1 percent it projected last October, with the pace picking up to 4.3 percent next year.

"The recovery is coming sooner than expected. But we are not out of the woods and we have to be cautious," he added.

Predictions for recovery have been improving steadily since last year in tandem with an explosive stock market recovery.

But much of the U.S. economy's recovery from the most brutal downturn since the 1930s has been driven by government stimulus and businesses being less aggressive in reducing inventories.

This has raised concerns that growth could stutter later this year when the boost from the two sources fades, given tepid consumer spending and high unemploymment.

Strauss-Kahn, a former French finance minister, said that although a double dip could not be ruled out, the IMF did not forecast one.

The head of the IMF refused to be drawn into commenting on the next World Economic Outlook before it was released in "ten days" he said.

Strauss-Kahn also warned of the risks in a premature recovery that could prompt governments to retreat from public stimulus policies too early and thus "shooting themselves in the foot."

Along with concerns over sovereign debt in the euro zone, Strauss-Kahn added that a third risk was the "huge amount of capital inflows that could go to countries such as Brazil and Indonesia that would create bubbles."

The world economy could grow 4.1 percent this year, 0.2 points more than previously forecast, the International Monetary Fund (IMF) says in the latest draft of its World Economic Outlook, Italian news agency ANSA reported.

The U.S. economy is now expected to grow 3.0 percent this year, instead of the 2.7 percent forecast in the IMF's January report, according to ANSA and Italian newspapers which published the draft figures on Sunday.

The IMF is due to publish its next World Economic Outlook on April 21, business newspaper Il Sole 24 Ore said.

According to the draft, euro zone growth this year is now forecast to be 0.8 percent, down 0.1 points from January's estimate. In 2011, the figure is seen at 1.5 percent, also down 0.1 points, the reports said.

Europe "is coming out of recession more slowly than other regions," the draft said, because there are "various forces which are putting a brake on recovery," including Greece, Il Sole 24 Ore said in its report on Sunday.

Europe's biggest economy, Germany, is expected to report a 1.2 percent rise in gross domestic product (GDP) in 2010 and 1.7 percent in 2011, the draft says according to the reports.

Those figures are down 0.3 points and 0.2 points respectively from the January forecast.

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