IMF chief doesn't see double dip for global economy

08:01, January 21, 2010      

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The world economy is recovering faster and stronger than expected and a double dip recession is unlikely to happen, Dominique Strauss-Kahn, managing director of the International Monetary Fund (IMF), said on Wednesday in Hong Kong.

MULTI-SPEED RECOVERY:

With Asia leading the recovery, the global economy is experiencing a faster rebound than expected, with the projected growth rate this year likely to beat a forecast of three percent, said Strauss-Kahn in the speech to the Asian Financial Forum (AFF) held here on Wednesday.

As for the Asian economies excluding Japan, the growth forecast by the IMF will be "over 7 percent for next year" thanks to a stronger domestic demand, sound economic frameworks and also swift policy to respond to the crisis in the region, he said.

However, the recovery was fragile and various regions were recovering at a varying pace, he added.

"The bad news is, the recovery is fragile, especially for the advanced economies," said Strauss-Kahn, adding that most of the growth of these economies comes from public support, with the private demand still remaining very weak.

"It's difficult to say the crisis is over, before there is a sustainable private demand likely to offset and to make all of the public support useless," he said.

Moreover, he saw a possible rise of the unemployment rate in the near future as another drawback of the recovery, predicting the peak in the unemployment for most of the advanced economies and also some emerging economies coming in 6 months to one year or more.

"From this point of view, it's difficult to say that we are out of the woods," he said.

POTENTIAL RISK IN FINANCIAL MARKET:

Strauss-Kahn said that the multi-speed recovery of the globe has been well reflected in the financial market and created another problem -- capital inflows.

A huge amount of liquidity "coming from" the monetary policies by the United States and the European Union central banks, combined with a renewed risk appetite, has created a lot of expectations of high return in emerging countries.

Therefore, some emerging economies have been experiencing huge capital inflows, which, warned by Strauss-Kahn, may have raised great concern in those economies about the impact on their interest rate, domestic demand and the financial stability.

The huge capital inflows may have brought the potential risk of "asset bubbles," which the emerging economies should keep an eye on at this moment, he said.

BUILDING A STRONGER GLOBAL ECONOMY:

Commenting on the global financial system, Strauss-Kahn emphasized the need for stronger regulation and supervision and warned there was a risk that the political momentum may be lost and that the financial sector was going back to its old ways.

"The main thing we have to worry about is that in six months or 12 months from now, everybody will have been back to business as usual and been forgotten the lesson," he said.

Kahn also called for reforms in the financial sector as a lesson of the crisis for the purpose of building a stronger global economy.

Talking about Asia's new role in the post-crisis economy, he said that the region's continued dynamism meant it would play a greater role in sustaining the recovery.

He also said that the economies in the region would have to adapt to the new challenges presented by the post-crisis economy and rely more on domestic-led growth.

Source: Xinhua
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