IMF suggests earlier recovery; stimulus a prop

IMF suggests earlier recovery; stimulus a prop
Business Standard, September 9, 2009, Page 5

LONDON, Reuters

Economic recovery may come three months earlier than forecast, the head of the International Monetary Fund 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 Il 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.

A document obtained by Reuters on Friday showed the 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.

CAUTION

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 fiscal spending package, tax incentives and what officials have dubbed an "appropriately loose" monetary policy.

INDIA POLICY

It is too early to withdraw the excess monetary accommodation in the Indian banking system until clear signs of growth is well established, a senior international monetary fund official said.

Kalpana Kochhar, deputy director (Asia-Pacific), IMF, said it was holding India’s growth forecast for the current fiscal ending March 2010. It expects Asia’s third biggest economy to expand 5.8 percent in 2009-10 and 6.8 percent in 2010-11.