Governments and banks have much yet to do to ensure the global economy begins to recover at the start of next year, the International Monetary Fund chief Dominique Strauss-Kahn said on Monday. Finance ministers of the Group of Eight nations agreed over the weekend that the global economy was showing encouraging signs of stabilisation and started to consider how to unwind rescue steps for their economies.
The IMF managing director said on a visit to Kazakhstan that he largely agreed with their position but he appealed for caution in assessing the state of the global economy. "Their (G8) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," Strauss-Kahn told Kazakh Prime Minister Karim Masimov. "The are some green shoots. And IMF has revised upward its forecast for 2010. But we have to be very cautious and a lot has to be done to be sure, to be as sure as possible, that recovery will take place in the first half of 2010."
The IMF has raised global growth estimates for 2010 to 2.4 percent from 1.9 percent, and confirmed its April forecast for a 1.3 percent contraction in 2009, a G8 source who has seen the latest figures said on Thursday. But credit must start flowing more freely and the banking sector must ensure its finances are secure if the global economy were to recover, Strauss-Kahn said.
"The (credit) markets are not as frozen as they were one years ago, or eight months ago but they are still nor functioning normally. And the recovery needs markets functioning correctly," he said. "One of the constants of (banking) crises is that you never recover before the cleansing of the balance sheets of the financial sector."
Pressure has been building in the G8 for plans to wind down economic stimulus as soon as it is no longer needed - "exit strategies" that would prevent market interest rates from climbing high enough to threaten economic recovery. Strauss-Kahn said the IMF had already begun work on an "exit strategy", which needs to take place in three spheres - monetary liquidity, state deficits that funded stimulus plans and the return of partially or fully nationalised companies to the private sector.
"But it's to early ... to talk about an exit strategy which would give the impression that we are already at the end of the crisis," he said."We first have to exit the crisis before we can implement an exit strategy and we haven't exited the crisis yet."
GLOBAL RECOVERY: An expected economic revival in the first half of next year would help emerging market nations such as Kazakhstan to return to healthy gross domestic product growth, he said. "...The recovery that we expect at the global level for the first half of 2010 can have a rapid effect on an economy like yours which can pick up rapidly after the global recovery," he told the Kazakh prime minister.
Like other regional economies, ex-Soviet Kazakhstan - central Asia's biggest economy - has been hit hard by the crisis which has ended years of double-digit growth. The IMF expects the Kazakh economy to shrink 2 percent this year, a more pessimistic forecast than the one percent growth seen by the Kazakh government. He said, however, that Kazakhstan's own forecast could prove realistic depending on the state of the global economy. "The forecast of the government, which is a little higher than ours, is not unreachable," he said. "We are in a time where forecasts are difficult to make."