The global economy may not generate much employment growth in coming years, with Europe most at risk of a sluggish and jobless recovery, IMF Managing Director Dominique Strauss-Kahn said in an interview.
“The recovery is not enough, you need to have a recovery with jobs,” Strauss-Kahn told Bloomberg Television on Sunday in Oslo. “The worst thing to do would be to believe that because we escaped — at the edge of the cliff — the big crisis that could have happened one-and-half years ago, we are safe. We’re not safe yet.”
IMF chief economist Olivier Blanchard last week warned that joblessness in the US, Europe and elsewhere will likely linger for months.
The Organisation for Economic Cooperation and Development said policy makers may need to extend or bolster stimulus programs as growth proves slower than projected.
The recovery is “coming not as fast and as strong as we expected, but it’s still a recovery with some uncertainties,” Strauss-Kahn said ahead of today’s joint conference with the International Labor Organization. “The question now is not only to boost growth, but to boost growth in a way that will be able to create millions of jobs that we need.”
The IMF is scheduled to release its new forecast of global growth next month. Growth is strong in most Asian countries, with some expanding at rates of 6 percent to 8 percent, Strauss-Kahn said. South American economies including Peru and Chile are also expanding fast and the recovery in Africa is coming earlier than expected, he added.
“In the US it’s more uncertain,” he said. “The part of the world where the risk of a sluggish recovery is the strongest is certainly Europe.”
There, because of a weaker linkage between economic growth and the labor market, expansion of about 2 percent may not be sufficient to create jobs, he said.
Governments that are withdrawing the fiscal support prompted by the global financial crisis should be careful not to remove all measures at once and harm the recovery, as long as their budgets will permit a more gradual exit, Strauss-Kahn said.
At the same time, “priority number one” is to bring their debt back to sustainable levels over the medium term, he said.
The US last week announced more plans to boost growth. US President Barack Obama is asking the US Congress to take up proposals to spend US$50 billion to rebuild the US transportation infrastructure, permanently extend a research-and-development tax credit and let businesses deduct the full cost of capital investments in the year the expenditures are made, instead of writing them off over periods of as long as 20 years.
The IMF sees only a small risk of another recession, Strauss-Kahn said. If one materialized, monetary policy should be the first line of defense, including some of the extraordinary measures central banks took over the past two years, he said.