Recovery still fragile, says IMF

Mr Strauss-Kahn says the timing of any exit policy is essential to avoid the risk of double-dip recession. -- PHOTO: REUTERS

TOKYO: The head of the International Monetary Fund says China and other developing Asian economies are leading a global recovery that is faster and stronger than expected, but he warns that money rushing into emerging markets could lead to asset bubbles.

Mr Dominique Strauss-Kahn, the managing director of the IMF, told reporters in Tokyo yesterday that recovery remains very fragile and some countries may suffer double-dip recessions if they were to stop strategies taken to battle the global financial crisis too early. Mr Strauss-Kahn strongly suggested that the IMF would raise its 2010 global growth forecast from the 3.1 per cent it projected in October.

China, India and other emerging Asian economies were close to returning to their pre-crisis growth rates, while rebounds in the United States, Japan and other advanced economies remained 'sluggish', he said.

'The forecasts we're going to release in a couple of days will show that this recovery is going faster and stronger than we expected,' Mr Strauss-Kahn said.

While the IMF does not forecast a 'double-dip', risks remain.

'We have to be very cautious because this recovery remains very fragile,' he said. 'Finding the right time to implement exit policies is really a difficult one. If you exit too late, you waste resources. If you exit too early, you have a risk of going back into recession.'

The best indicators for timing fresh growth strategies are monitoring private demand and employment, he said.

The IMF recommends that governments devise policies that will support the labour market, given still-high joblessness, which could lead to social unrest. The rush of money into major emerging markets reflects investors' recognition that they are growing rapidly.

But Mr Strauss-Kahn said this could lead to 'many problems', including asset bubbles and a sudden drop in foreign investment.

ASSOCIATED PRESS

Source: Straits Times, 19 Jan 2010.