IMF chief Dominique Strauss-Kahn sounded a pessimistic note on the US economy on Monday, saying a stronger-than-expected first-quarter performance did not necessarily mean the worst is over. "I am only partly reassured by data for the first quarter of 2008 that show that so far, output in the United States is not contracting," IMF Managing Director Strauss-Kahn said in a speech in Montreal.
"That does not mean that all the problem is behind us," he said. US economic growth will come in at "about zero, a little more, a little less" in coming quarters and growth will remain sluggish through 2009, he said. Consumer confidence remains low, credit remains tight and there is no way of knowing if the credit crisis is nearing its end, he said. All in all, the effects of the US downturn will be among the greatest in recent memory because it will be so protracted, he said.
In contrast to the "ice" of a slowing economy, policymakers also face the "fire" of inflationary pressure, he said. US core inflation has held steady at about 2 percent, Strauss-Kahn said, but bond markets are pointing to an upward creep in that measure of inflation, he said.
Canada, on the other hand, has not been nearly as badly hit by the downturn as the United States. The IMF is unlikely to revise much its latest forecasts for Canadian economic growth, which were for 2008 growth of 1.3 percent and 2009 growth of 1.9 percent. Strauss-Kahn - who will attend a meeting of Group of Eight finance ministers in Osaka, Japan next weekend - was critical of some countries that he said were seeking nationalist, protectionist solutions to combat global food prices and sagging economies.
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