There are encouraging signs from the US and some European economies but the global crisis is not over and stimulus must remain in place until unemployment recedes, the IMF's managing director said today.
Dominique Strauss-Kahn said that to avoid the risk of a double-dip recession governments must continue fiscal and monetary stimulus until unemployment peaks, which he said was likely to take 10-12 months.
Stock markets rallied yesterdayy after US data showed the world's largest economy expanded by a greater-than-expected 3.5 per cent in the third quarter, ending a year of declines and raising hopes the global crisis was almost over.
"There are some encouraging figures, a few months ago from European countries and yesterday from the US and that's all good news," Mr Strauss-Kahn told a news conference near Rome on Friday.
"Nevertheless it does not mean the crisis is over. The crisis will not be over until unemployment begins to decrease and that will take many months."
While he said the financial part of the crisis appeared to have ended, with little risk of further collapse among financial institutions in the near future, Strauss-Kahn said that private demand for goods and services remained very weak.
"If we want to avoid, which I think we will avoid, the risk of a double-dip, it's absolutely too early to withdraw the different stimulus which have been put in place," he said.
"In the 10-12 coming months, unemployment will continue to rise ... that's why we have to go on with the monetary and fiscal policies, the stimulus, until unemployment decreases. At that time we can declare victory," he added.
Mr Strauss-Kahn said the policies adopted to confront the financial crisis has already begun to unwind imbalances in the world's major economies, with signs of a fall in the US deficit and a more domestic-led growth model in China.
Ahead of next week's meeting of G20 finance ministers in St. Andrews, Scotland, Strauss-Kahn said members of the group of rich and developing nations would discuss plans for mutual assessment of each other's economies that "would certainly help" to further address imbalances.
However, Mr Strauss-Kahn said the G20 was still early in the process of defining this mutual assessment and next week's summit would simply discuss possible methodologies.
Reuters