MercoPress. South Atlantic News Agency

IMF predicts 2009 as “an awful year” but all are aware it’s a “global crisis”

Strauss-Kahn: “Unusually long and severe recession and the recovery sluggish”

The head of the International Monetary Fund, Dominique Strauss-Kahn, said Thursday that 2009 is essentially a lost year for the world economy, with millions of people at risk of being thrown back into poverty.

Strauss-Kahn told an audience at Washington's National Press Club that there are signs that the free-fall in the global economy may be starting to abate. But despite that, he said 2009 will not be a good year.

“2009 will be an awful year. No matter what happens now, it's already done. Global growth will be deeply negative. And the idea that we are now really facing the first global crisis, I think, is well understood by all,” he said.

The recession is likely to be “unusually long and severe, and the recovery sluggish” said the IMF chief, adding that “the human consequences could be absolutely devastating. This is a truly global crisis, and nobody is escaping”.

The former French finance minister pointed out that a recovery depends on the effectiveness of policies implemented in the main economies. The semi-annual IMF economic forecast, which is due to be released next week, says that the current recession will likely be “unusually long and severe”.

Strauss-Kahn said the recent Group of 20 meeting in London, which he attended, was exceptionally successful, mainly because leaders committed themselves to taking all actions necessary to pull the global economy out of its first synchronized, post-World War II downturn. He said that government spending programs to boost demand are unlikely to succeed until credit flows normally.

“So, the effectiveness of the stimulus itself will rely on the way the [credit] system will defreeze. And depending on that, the need [for more stimulus] for 2010 will be totally different. So it is impossible today to say that we will need more stimulus in 2010,” he said.

Strauss-Kahn expressed worry that the global slowdown imperils poor people in developing countries, threatening to push millions back into poverty. He said the G-20 agreement to provide more money to the IMF means that the lending agency will have the tools necessary to help countries in financial distress

Further on the IMF chief also predicted the US dollar would remain the world's reference currency, noting its resilience amid the global economic meltdown.

“I see no reason why the US dollar would not go on being the reference in the world; there are many reasons to think that when the crisis is over we will still be in a system where the place of the US dollar will be almost the same” he said.

“What is even surprising is that the dollar is doing well in this crisis,” he added.

Regarding China and the Chinese currency Strauss-Khan said the value of the renminbi was “substantially undervalued” according to IMF calculations. But the Chinese government's economic-stimulus packages should help remedy the problem.

“I expect the renminbi to be re-evaluated, just because of the shift of China's growth from export-led growth to domestic growth,” he said.