Global economy still highly vulnerable, says IMF

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The Managing Director of the International Monetary Fund (IMF), Dominique Strauss-Kahn, said in London last week that, "The global economy remains very much in a holding pattern - stable, and getting better, but still highly vulnerable."

 

According to a report on the organisation's website, Mr. Strauss-Kahn, said this while speaking at the annual conference of the Confederation of British Industry.

 

"Signs show confidence returning, but banking systems in many advanced economies remain undercapitalised, weighed down by leaden legacy assets and, increasingly, non-performing loans, on the household side, weak financial positions and high unemployment will damp down on consumption for some time and large public deficits add to vulnerabilities," he said.

 

Too early to exit

 

Mr. Strauss-Kahn said it is still too early for a general exit from accommodative fiscal, monetary, and financial sector policies. He recommended that such exit awaits a sustained recovery in private demand, as well as established financial stability.

 

"Exit too soon, and you kill the recovery. Exit too late, and you sow the seeds for the next crisis," he said. "We recommend erring on the side of caution, as exiting too early is costlier than exiting too late. As the pace of recovery differs among countries, so must exit strategies differ. Plans for fiscal consolidation should be the top priority, especially in advanced economies," he said.

 

Mr. Strauss-Kahn said other key policies for exit strategies include lower interest rates, reserves accumulation, tighter fiscal policy, and financial sector prudential measures.

 

Nigeria not out of the woods yet

 

Bismark Rewane, a renowned economist and the Managing Director, Financial Derivatives Company, explained in the November edition of his Monthly Economic News and Views that risk still abounds in the Nigerian economy despite recovery signs.

 

"The Nigerian economy could be poised for recovery but the risks of it sliding into a steep recession persists," said Mr. Rewane.

 

"The consensus is that Nigeria is at the trough of the business cycle. The upside potential for a rapid recovery is predicated on a surge in oil price production and accommodative monetary policy. There is a 60 per cent probability of a recovery, 20 per cent probability of a flat and 20 per cent chance of a steep recession." he said, adding that leading economic indicators point towards a strong recovery by next year's second quarter.

 

The world economy has been hit by the consequences of the financial meltdown, which started about two years ago with the sub-prime mortgage crises in the United States, then Europe, before it extended to other parts of the world. Finance organisations have been seeking for solutions to the crisis which has led to the collapse of many banks and other financial institutions, and has rendered some countries and organisations bankrupt.

 

World economy needs new engine

 

According to the IMF boss, the old model, under which households in the United States and elsewhere propelled the global economy with their insatiable craving for consumption, is "dead-or at least on its last legs".

 

"If we are to have sustained global growth, somebody else needs to step into the breach. The leading candidates are the surplus countries," he said, noting that China and other emerging Asian economies are shifting from exports toward domestic demand, aided by expansionary fiscal policy.

 

Noting that the financial sector in the advanced economies brought down the whole global economy, Mr. Strauss-Kahn called for progress on reforms to make the financial sector a safer, more stable place, without discouraging financial innovation.

 

"In addition to better rules, we need better application of rules - and that means beefing up supervision and supervisory capacity," Strauss-Kahn said. "The new regulatory system must do a better job of avoiding capture and complacency. This is another lesson from the crisis."

 

 

(Source: NEXT) 

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