Economic recovery may come a quarter early, says IMF

Economic recovery may come a quarter early, says IMF
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First Published: Tue, Sep 08 2009. 11 11 PM IST

Positive signs: IMF’s Strauss-Kahn said the world may be seeing the end of the tunnel, but it is still in crisis. Dominic Lipinski / AP
Positive signs: IMF’s Strauss-Kahn said the world may be seeing the end of the tunnel, but it is still in crisis. Dominic Lipinski / AP
Updated: Tue, Sep 08 2009. 11 11 PM IST
London: Economic recovery may come three months earlier than forecast, the head of the International Monetary Fund (IMF) said, but policymakers warned it may not last if governments reversed stimulus programmes too early.
“For the (global) economy, we have been saying for a year that the recovery will come in the first half of 2010. It might even be a quarter ahead,” IMF managing director Dominique Strauss-Kahn told II Sole 24 Ore newspaper.
“We are seeing the end of the tunnel, but we are still in crisis,” he said in the interview published on Tuesday.
Positive signs: IMF’s Strauss-Kahn said the world may be seeing the end of the tunnel, but it is still in crisis. Dominic Lipinski / AP
A document obtained by Reuters on Friday showed IMF had increased its forecasts for economic activity this year and next. It is due to publish them later this week.
On Tuesday, generally upbeat data from Germany, France and Britain added fuel to the recovery debate, which has sent stocks soaring since March as fears raised by the bankruptcy of Lehman Brothers a year ago proved to be unfounded.
Emerging markets shares hit a new year high, rising to levels last seen before the Lehman collapse, and world stocks in general headed towards a new 2009 peak.
But government and central banks were cautious.
A senior member of the European Central Bank said in an interview published on Tuesday that markets might be reacting too optimistically to recent data.
“An over-reaction to this data is not good, because it could make us forget that governments still face a very significant agenda of reforms. And without completing those reforms we won’t return to sustainable paths of growth,” ECB executive board member Manuel Gonzalez-Paramo told Spain’s Expansion newspaper.
In China, one of the main engines of global growth over the past 10 years, a senior cabinet official said the economy was stronger but recovery was still not solid.
State councillor Ma Kai said Beijing would continue to implement its policies to stimulate growth, which have included a $585 billion (Rs28.5 trillion) fiscal spending package, tax incentives and what officials have dubbed an “appropriately loose” monetary policy.
Finance ministers from the G-20 economies agreed at the weekend that now was no time to reverse the trillions of dollars of stimulus pumped into the world economy. They say they are waiting for when recovery is established.
Data on Tuesday supported signs of a tentative economic recovery.
The Bank of France said the French economy—which like Germany, exited recession in the second quarter—is expected to grow by 0.3% in the third quarter.
German exports increased for a third month running in July, fuelling hopes that a recovery in Europe’s largest economy has gathered pace.
Manufacturing output for the same month unexpectedly fell but the economy ministry cited summer holiday effects and forecast output growth for the third quarter as a whole.
In Britain, manufacturing output rose at its fastest monthly rate in 1-1/2 years in July.
“These are good strong numbers,” said Brian Hilliard at Societe Generale. “It is signalling that we are going to be leaving recession in Q3.”
Britain failed to match France and Germany in the second quarter, and contracted by a further 0.7%.
In the corporate world, Airbus SAS, the world’s largest producer of passenger jets, said airline traffic had possibly seen “the trough of the recession” and could start to rebound from next year.
A pick-up in mergers and acquisitions activity has also fostered belief in recovery.
A $16.7 billion bid by North America’s Kraft Foods Inc. for British confectioner Cadbury Plc has been taken as a sign of life in the corporate sector, even though the bid was rejected. But clear risks remain—most obviously climbing unemployment and banks’ continued reluctance to lend. Policymakers face a dilemma. They want to free up lending but are determined to impose new rules on banks to prevent another credit bubble that could be followed again by bust.
Top central bankers said on Sunday banks would have to set aside more profits as a cushion against hard times and face limits on how much debt they could run up.
Bank chiefs defended their business models on Tuesday against new regulation that aims to put them on a tighter leash.
Deutsche Bank chief executive Joseph Ackermann told a conference in Germany that regulators could choke off an economic rebound if they made overly restrictive rules on how much capital and liquidity banks need to hold.
“The consequences for credit availability and the price of credit need to be considered,” he said.
But he acknowledged that banks did not have enough capital. “And I deem it right that this has to be corrected,” he said.
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First Published: Tue, Sep 08 2009. 11 11 PM IST
More Topics: IMF | Economy | Growth | Manufacturing | Recession |