The global economy as a whole could see zero growth this year as it reels from the effects of the financial crisis, the managing director of the IMF said on Wednesday.
“This situation is quite clear. 2009 is already largely determined and it will be a very bad year,” IMF chief Dominique Strauss-Kahn told Les Echos newspaper in an interview released ahead of its publication yesterday.
“The next IMF forecast, in three months time, could well be close to zero,” he said.
The IMF already revised its growth forecast for this year down to 0.5 percent from a November estimate of 2.2 percent with wealthy countries’ economies in recession and expected to shrink by around 2 percent, and “the figures we’ve seen since aren’t good,” Strauss-Kahn said.
He said he hoped that next year would see a turnaround, but repeated his warning that European banks were still carrying too much bad debt and said more needed to be done to clean up their balance sheets.
In a reiteration of previous comments, Strauss-Kahn said efforts needed to be stepped up to combat the economic crisis and that it was vital that credit flows resumed and that banks’ balance sheets were cleaned up.
High levels of toxic assets still plagued the financial system and distinctions between viable banks and those that would disappear still needed to be made, he said.
“This selection process is still in front of us,” he said, adding that the problem loomed larger in the US, home to 8,000 lenders, than in Europe, where the sector was less segmented.
Asked whether there were serious risks of some countries defaulting, he said: “A certain number of countries are benefitting from our help. That a second wave of countries comes to knock at the door is likely.”
Turning to the question of protectionism, Strauss-Kahn said that the phenomenon was not manifesting itself in the same way as it had in the 1930s, via a rise in customs tariffs, but that it was more sophisticated and involved the financial sector.
“When a country encourages its bankers, in exchange for help in the form of recapitalisations or deposit guarantees, to exclusively dedicate its credit activities to the national level, it is a form of protectionism,” Strauss-Kahn said.