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“Worst of financial turbulence is over”, but hangover persists

Friday, May 16th 2008 - 21:00 UTC
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IMF Dominique Strauss-Kahn IMF Dominique Strauss-Kahn

The worst of the global financial turbulence is over, but the effects on the world economy will be felt for some time, the head of the International Monetary Fund said Thursday in Brussels before a European Parliament committee.

IMF Managing Director Dominique Strauss-Kahn said there are "good reasons to believe the worst news (is) behind us." But he warned that the persisting possibility of a credit squeeze and the changes in consumer behavior will affect the global economy until at least the end of this year, possibly until mid-2009. Strauss-Kahn anticipated that the US economy would only pick up once the housing market is stabilized. "When you look at the housing prices in the US they're still going down, there's not a single sign of stabilization," he said. "Until we see some improvement on the housing market we'll probably have no improvement in the US". Strauss-Kahn added that emerging economies, which will account for the bulk of global economic growth this year, are not immune to the global financial crisis, which started in August 2007. During the hearing the IMF chief defended the institutions forecasts for the Euro zone economies which are more pessimistic than those of the European Commission. He argued that this can be attributed to "different measuring parameters" for both sides of the Atlantic and the degree of contagion. "We use traditional parameters; nobody has said we should change them". According to the IMF the Euro Zone is forecasted to expand 1.4% in 2008 compared to the 1.7% of the EC; for Spain the same applies, 1.8% and 2.2%. Further on the IMF head said that the current cooling of the world economy forced on by the collapse of the US mortgage market breaks with the paradigm that financial crisis originated in emerging economies, "which makes it more urgent to establish control mechanisms at global level". But he cautioned the IMF task is not to become a global financial supervisor, but rather an information institution, with the contribution from national and regional experts, that should be geared to alert or prevent possible crisis and their contagion. As to the food prices spiral he said it can be partly explained by the financial crisis, China and India's growing demand, bad crops and the bio-fuels emergency.

Categories: Economy, International.

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