International Monetary Fund Managing Director Dominique Strauss-Kahn used the word “depression” to describe economies in the United States, Western Europe and Japan at a meeting of the South East Asian Central Banks in Kuala Lumpur.
The IMF’s most recent economic projections show that global growth will be close to zero, “the worst performance in most of our lifetimes,” Strauss-Kahn said. The United States, Western Europe and Japan “are already in depression.”
Governments and central banks need to act “decisively” in support of investors, Strauss-Kahn said.
“Some countries are trying to make government support of banks conditional on their giving priority to domestic borrowers, to the detriment of financing across borders,” he noted.
“This will hurt emerging economies, whose growth depends on access to foreign bank financing. It is protectionism in the financial markets, and its consequences could be as damaging and dangerous as the trade protectionism of the 1930s.”
Strauss-Kahn’s comments are the most severe expressed by a major political figure thus far, and were considerably more pessimistic than his agency’s forecast even last month.
Fed member Janet Yellen has joined the chorus of financial leaders unafraid of invoking the “D” word in public as world economies reel.
“Economic growth in the rest of the world — including Europe and Japan — has weakened sharply for a number of reasons, including spillovers from the U.S. recession and the financial meltdown that now has spread globally,” Janet L. Yellen, president of the Federal Bank of San Francisco said this week.
Yellen said the world economy appears to have entered recession in late 2008, and it seems likely that this contraction may last for some time.
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