Amman: International Monetary Fund head Dominique Strauss-Kahn said on Sunday the world economy was not “out of the woods” despite a faster recovery in developing and emerging countries than earlier forecast.
He told reporters during a visit to the country that although global recovery was “resuming sooner than expected, private demand was still not strong enough to signal the end of the prolonged recession experienced by the world economy.
“You see growth resuming almost everywhere but that almost everywhere these growth figures are related to public support and private demand remaining rather weak and not strong enough. Until private demand is sustainable to provide growth it will be difficult to say the crisis is over,” he added.
The IMF sharply raised its estimates back in January, predicting that the world economy would expand by 3.9% in 2010, much higher than the 3.1% it projected last October, with the pace picking up to 4.3% next year.
“The recovery is coming sooner than expected. But we are not out of the woods and we have to be cautious,” he added.
Predictions for recovery have been improving steadily since last year in tandem with an explosive stock market recovery.
But much of the US economy’s recovery from the most brutal downturn since the 1930s has been driven by government stimulus and businesses being less aggressive in reducing inventories.
This has raised concerns that growth could stutter later this year when the boost from the two sources fades, given tepid consumer spending and high unemploymment.
Strauss-Kahn, a former French finance minister, said that although a double dip could not be ruled out, the IMF did not forecast one.
The head of the IMF refused to be drawn into commenting on the next World Economic Outlook before it was released in “ten days” he said.
Strauss-Kahn also warned of the risks in a premature recovery that could prompt governments to retreat from public stimulus policies too early and thus “shooting themselves in the foot”.
Along with concerns over sovereign debt in the euro zone, Strauss-Kahn added that a third risk was the “huge amount of capital inflows that could go to countries such as Brazil and Indonesia that would create bubbles”.