IMF chief warns on risk of double-dip recession

THE head of the International Monetary Fund (IMF) warned yesterday that the global economy remains at risk of suffering a double-dip recession.

Dominique Strauss-Kahn said countries should not ditch stimulus packages that have triggered growth through governments’ pumping of money into economies.

Most economies are pulling out of recession but he has raised concerns that a premature end to the intervention in favour of fiscal tightening could lead to a renewed slump.

He warned: “We have to be very cautious because this recovery remains very fragile. Recovery in advanced economies has been sluggish. The best indicator is private demand and employment.

“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.”

He added that tackling high levels of government debt will be a priority for many governments.

Strauss-Kahn indicated that the IMF would raise its growth forecasts for this year. The IMF is predicting the global economy will grow by 3.1 per cent in 2010. Strauss-Kahn said Japan’s experience with its own financial crisis since the late 1990s shows that recovery begins only when companies and banks have cleaned up their balance sheets.

Strauss-Kahn also insisted that many impaired assets around the world have not yet been disclosed.

The IMF boss also voiced his support for regional frameworks to contain financial crises, such as an Asian fund created last year.

Many City economists have warned of the dangers of ending stimulus too soon.