IMF sees significant downside risks to global recovery

08:02, July 28, 2010      

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The global economic recovery is expected to be moderate with significant downside risks, a senior official from the International Monetary Fund (IMF) said on Tuesday.

"Despite recent signs of slowing momentum, the global recovery is expected to continue. Nevertheless, the most likely prospect is for a moderate, multi-speed recovery, with significant downside risks," John Lipsky, First Deputy Managing Director of the IMF said in a speech at the Korea Economic Institute in Washington D.C. .

"While financial markets have improved somewhat in recent weeks, ongoing financial market strains have heightened uncertainty," he noted. "Against this backdrop, the overarching policy challenge is to sustain the recovery while restoring confidence."

Lipsky listed three key policy challenges. First, Policy-makers need "an ambitious and vigorous program" to repair and reform the financial system.

"The recently completed European bank stress tests are receiving particular focus at present, and in general they have made a positive contribution to market sentiment," he said.

According to the findings of the Committee of European Banking Supervisors, only seven European banks failed the tests and only needed to shore up their finances by 4.5 billion dollars.

Second, authorities need to design credible, medium-term fiscal consolidation plans to bolster confidence. Lipsky argued that while most G-20 economies' current fiscal plans appear to be appropriate, countries facing sovereign funding pressures still will require upfront measures to underpin confidence.

Finally, the director stressed the importance of rebalancing the world economy. Economies with both excessive external surpluses and excessive external deficits need to reform their economic structures to achieve more balanced and sustainable growth.

Source: Xinhua


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