The International Monetary Fund is likely to cut its 2009 world economic growth forecast again next month, a top IMF official said as he urged more efforts to bolster financial and credit markets.
IMF First Deputy Managing Director John Lipsky said policy actions should include renewed efforts to stabilizing advanced economies' financial systems, as well as monetary and budget measures to support final demand.
“While we believe that efforts to stabilize financial conditions and strengthen demand support measures could still enable a gradual recovery beginning in the second half of 2009, it seems likely we will once again reduce our growth forecast, perhaps substantively,” he told the Council on Foreign Relations
“Additional - and vigorous - policy action will be needed in order to avoid a serious global downturn,” he said a prepared text of the speech in New York.
On November 6, the IMF sharply cut its projections for world growth next year to 2.2%, down 0.8% point from an October forecast, and said developed economies were headed for their first full-year contraction since World War Two.
He said while financial markets had responded to the aggressive policy measures by some governments, market pressures remain in Europe and the United States.
Virtually all of the measures to tackle the financial market de-leveraging and to restore the smooth functioning of markets “have tended to be partial, rather than comprehensive,” Lipsky said.
“Thus, it is not surprising that the downturn in credit growth here and abroad shows no sign of ending,” he added.
He called for a redoubling of efforts to contain the financial de-leveraging without further damaging the economy.
Those steps should include providing liquidity support for financial institutions, recapitalizing banks and removing damaged assets from their balance sheets, he said.
To halt the major fall in global output and to ease substantial uncertainty, governments who can afford it should provide stimulus measures that are diversified and last longer than one or two quarters.
“We think fiscal stimulus should be large,” Lipsky said, adding that the IMF suggested global fiscal stimulus should total about 2% of world gross domestic product. It should be significantly more than 2% of GDP in fiscal spending in some major economies because other countries are not able to contribute at all, he added. (Reuters)