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“Deep scars” from recession will an effect for years to come, warns IMF

Thursday, August 20th 2009 - 04:51 UTC
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IMF chief economist, Olivier Blanchard also anticipates unemployment will not peak until next year IMF chief economist, Olivier Blanchard also anticipates unemployment will not peak until next year

The world has begun to recover from recession but the process will not be simple, the International Monetary Fund (IMF) has warned. The recession has “left deep scars which will affect both supply and demand for many years to come” according to IMF chief economist, Olivier Blanchard.

His comments came after Japan this week followed France and Germany is seeing their economies return to growth. The IMF said in July the economy was “starting to pull out of recession”.

In this latest report, Mr Blanchard predicted that global output may also remain lower than it had been before the crisis.

Countries must rebalance their economies to make it sustainable, Mr Blanchard said.

Economies dominated by consumption - such as the US - would have to focus more on exports, while Asia turned more to imports, he said. He also said that dysfunctional financial systems in many advanced countries would need “a long time to find their new shape”.

Meanwhile, emerging market nations may not see capital inflows return to pre-crisis levels for some time.

Mr Blanchard also warns that unemployment will not peak until next year, and says that higher taxation is inevitable because of the costs of the crisis.

BBC chief economics correspondent, Hugh Pym, said that “the IMF remains cautious, but its view seems to be that the glass may now be half full rather than half empty”.

Professor David Blanchflower, a former member of the Bank of England's Monetary Policy Committee said that there were “some signs in some countries that the worst is over”. “But be mindful that in the European Union, 20...countries are in recession,” he told the BBC.

He added that the rebalancing which Mr Blanchard called for was not going to happen “automatically”.

There was a risk that recoveries in individual nations were being fuelled by government stimulus packages, Professor Blanchflower said, and that “when these disperse we will see a return to recession”.

Banks had to be in a position to lend money, while consumers needed confidence that things were going to improve, he added.

Japan's return to growth followed four consecutive quarters of contraction - with correspondents saying the rise was due to a huge government stimulus package.

Recent figures show other economies coming out of recession, including Germany, France and Hong Kong, a sign the global slowdown is easing.

The French and German economies both grew by 0.3% between April and June, bringing to an end recessions in Europe's largest economies that have lasted a year.

Analysts had not expected the data, suggesting recovery could be faster than previously expected. And Hong Kong recorded growth of 3.3% in the second quarter.

That data was also better than had been expected, with the government subsequently increasing its forecast for growth in the whole year. (BBC).-

Categories: Economy, Politics, International.

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