IMF MD sees renewed stability but remains cautious about global economic recovery, asks for continued policy actions
September 4, 2009:
International Monetary Fund Managing Director Dominique Strauss-Kahn, delivering the 2009 Bundesbank Lecture today in Berlin, said stimulus measures adopted to combat the global crisis should be withdrawn only when the economic recovery has taken hold and unemployment is set to decline.
While acknowledging that the global economy appears to be emerging from the worst financial and economic crisis in the post-war period, Mr. Strauss-Kahn emphasized that the recovery will be sluggish and that a jobless recovery remains a risk. “I am concerned about the social and economic costs of high unemployment, which will persist even as financial markets and output stabilizes,” he said.
Given the fragility of the recovery, he warned that “Policymakers should err on the side of caution as they decide when to exit from their crisis response policies.” He added, however, that governments should develop their exit plans now so that they are able to build public support and act when the time is right.
Mr. Strauss-Kahn underlined that international policy coordination has been an essential part of the response to the crisis and that "coordination of exit strategies will be just as important.” Thanks to concerted and forceful policy actions, the crisis had been contained, he said.
He focused on three policy areas essential to ensure a sustainable recovery:
1. Identifying New Sources of Growth
On the demand side, “the baton will eventually need to be passed from the public to the private sector,” he said. He also called for a global rebalancing of demand across countries, which would require strong policy actions--including fixing the financial system in advanced economies and boosting domestic spending in emerging Asia.
On the supply side, he called for reforms that boost productivity—by increasing labor market flexibility and competition in product markets. He also said that “advances in green technology could even become the microprocessor revolution of tomorrow—while at the same time helping address global climate change.”
On macroeconomic policies, he emphasized that “addressing concerns about fiscal sustainability is of the first order of importance”—including spending due to aging which is more than ten times the fiscal cost of the crisis. On inflation, Mr. Strauss-Kahn said that he did not expect it to become an issue until the recovery was firmly underway.
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