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IMF’s Strauss-Kahn sees sharp cuts in growth forecasts

  The International Monetary Fund will sharply cut growth forecasts this month and the world will not return to strong growth for two or three years, IMF Managing-Director Dominique Strauss-Kahn said on Wednesday.

“Things are not improving,” Strauss-Kahn said in an interview with the BBC’s ‘Hard Talk’ program.

The International Monetary Fund’s last forecast was “not that good” and a new forecast, to be released in a few days, will be “even worse,” he said. Asked about the fund’s forecasts for the world, US and European economies, Strauss-Kahn said he did not know exactly how much these would be cut, but added: “I’m afraid that at least half a point or one percentage point down.”

In its November forecast, the IMF projected world output would grow by 2.2% in 2009 while the United States would shrink by 0.7% and the euro area would shrink by 0.5% but the credit crunch has tightened its grip since then.

Asked if the downwards revision meant the IMF expected a contraction in US and European economies of between one and two percent this year, Strauss-Kahn said: “There is going to be this kind of contraction in the US, in Europe, including the UK.”

Emerging countries, while still growing, would also do worse than expected, he said. “China, India, Brazil, other emerging countries are going to experience very slow growth.” “Altogether, this first half of 2009 will be bad, the second half may show some improvement, but recovery can begin only at the beginning of 2010,” he said.

“We are not going to go back to a high rate of growth before two or three years,” he added. Strauss-Kahn said the IMF may need more funds in six months to finance bailouts of countries that fall victim to the financial crisis.

“The IMF has enough money today to deal with the countries coming today. If the crisis goes on, which is the most probable way, then down the road, in six months from now, we will need more money,” he said. “That’s why we need to organise now the way to have more money in six months, because it won’t be done overnight.” (Reuters)