The International Monetary Fund's (IMF's) Managing Director Dominique Strauss-Kahn was quoted on Sunday as saying the IMF would cut its global economic forecasts in the coming week and that he expected a recovery to start in the first half of next year.
"The forecast that we will present this week will be worse than the previous one," Strauss-Kahn told Germany's Handelsblatt business daily in an interview to be published on Monday. In its most recent forecast, the IMF said the world economy would shrink in 2009 by between 0.5 percent and 1.0 percent, the largest contraction since the Great Depression.
The IMF's World Economic Outlook is to be released in full on Wednesday. Strauss-Kahn also said there were some positive signals for the global economy but that a recovery was not expected yet.
"We are not yet over the mountain. The IMF expects that a recovery will set in during the first half of 2010," he said. The risk of deflation was more of a threat to the economy than inflation, at least in the near future, Strauss-Kahn was quoted as saying.
"In the short term, the risk of inflation is zero, today we have rather the problem of deflation," he said. However, it would be wrong to think that big spending packages agreed by countries around the world would have no impact on inflation. "Therefore we need an exit strategy to be able to return to a normal public spending situation once we have overcome the crisis. That is part of each stimulus package," he said. Strauss-Kahn also said countries have been too slow in acting to clean up banks' balance sheets. "Whether we are talking about Germany, other European countries, or the United States, this subject is moving too slowly," he said.