The International Monetary Fund maintained its forecast on Monday for a global economic recovery in early 2010, but warned that the view is rife with risk and that much still needs to be done to cleanse bank balance sheets. IMF Managing Director Dominique Strauss-Kahn said he expects to see the turnaround start in the autumn of this year.
"2009 is already given and whatever we do in terms of economic policy, the figures in terms of growth and employment will be bad," he said in a speech at the annual Conference of Montreal.
"We still believe, as we've said for months, that the most credible scenario is that the recovery will take place in the first half of 2010 with the turning point in September, October, beginning of growth at the end of this year, and then really the first positive quarter as Q1 or Q2 in 2010," he said. But he said the IMF forecast is conditional on countries implementing the "right policies", and warned that the biggest risk to his outlook is countries taking too long to cleanse toxic assets from their banking systems.
Throughout the numerous financial crises the IMF has dealt in its history, there has been one constant that has always been required for recovery to take place, he said.
"You never recover until the cleansing of the balance sheet of the financial sector has been completed." He also warned that emerging economies such as Mexico, Colombia and Poland face huge financing gaps that, if not addressed, could put them at risk of default and ripple through the reegional and global economies. He emphasised that this was not due to incorrect policies in those countries, but rather a drying up of capital inflows due to the crisis.
Finally, he said the economic crisis in the world's poorest nations could easily lead to social unrest, political instability and even war, which would also spill over into the global economy even though those countries normally have little influence on financial markets.
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