World economy healing, but crisis not over: IMF

ISTANBUL (AFP) - – The world economy is recovering from steep recession but the crisis is not over as unemployment rises and banks remain weak, the International Monetary Fund said on Thursday.

"The recovery really has started. That does not mean, and I want to be crystal clear on this, that the crisis is over," IMF managing director Dominique Strauss-Kahn said in Istanbul.

"Until unemployment will decrease, it's difficult to say that the crisis is over. It's too early to crow victory," he said in a speech to university students in Turkey's biggest city.

He spoke as the International Monetary Fund raised growth forecasts for most economies in its World Economic Outlook (WEO) on Thursday ahead of the annual meetings of the IMF and World Bank in Istanbul next week.

Strauss-Kahn said that unemployment could peak as much as 14 months after the return to growth.

At the end of his talk at Bilgi University, a Turkish journalist from a small left-wing newspaper threw a shoe at the IMF chief and shouted "IMF, get out of Turkey!"

The IMF chief dodged the shoe and the man was spirited away by security guards.

The incident came as rallies anticipated to bring thousands into the streets in protest of the IMF and World Bank got underway.

In its latest WEO report, a little more than a year after the bankruptcy of Wall Street investment bank Lehman Brothers sparked a financial crisis that stunted the world economy, the IMF projected that growth would rebound 3.1 percent in 2010, better than the 2.5 percent estimated in July.

For 2009, the IMF saw a 1.1 percent global contraction, the worst recession since World War II.

"The recovery has started. Financial markets are healing," said IMF chief economist Olivier Blanchard.

"In most countries, growth will be positive for the rest of the year, as well as in 2010," he said at a news conference.

Blanchard reiterated IMF warnings that policymakers should avoid a premature exit from massive public economic support and coordinate their exit strategies in order to avert another shock.

"The current numbers should not fool governments into thinking that the crisis is over," he warned.

The IMF credited strong government action for shoring up demand.

"After a deep global recession, economic growth has turned positive, as wide-ranging public intervention has supported demand and lowered uncertainty and systemic risk in financial markets," the report said.

However, the IMF warned that the data shows that the rebound will be sluggish and "for quite some time" it would be slow to generate jobs. Meanwhile, credit would remain tight.

The US economy, the world's largest, was projected to grow 1.5 percent in 2010, following a sharp 2.7-percent decline this year.

In Europe, the pace of decline was moderating, with the 16-nation eurozone seen returning to growth of 0.3 percent in 2010, instead of the 0.3 percent fall projected in the IMF's previous forecast in July.

Emerging and developing economies led the pack, forecast to clock growth of 5.1 percent in 2010, led by China and India, at 9.0 percent and 6.4 percent, respectively.

The global recovery was finding support in a rebound in manufacturing, inventory restocking, returning consumer confidence and firmer housing markets, the IMF said.

But credit constraints remain a significant barrier to growth, despite the hundreds of billions of public dollars pumped into the financial system to unblock the gridlock, the report said, warning that banks lack the capital to restore lending to pre-crisis levels.

The IMF also urged a rebalancing of global demand as essential to keep growth on track, calling for the US to save more and Asian economies to save less.

Blanchard noted the US savings rate has surged amid the recession, but suggested that Asia has yet to do its part.

"We can't stay halfway," the chief IMF economist said.

"We're in the middle of the river. And we actually have to cross it and do the other half as well," he said.


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