Global economic situation worrying: IMF

GENEVA (AFP): The state of the global economy remains “extremely worrying and difficult,” IMF chief Dominique Strauss-Kahn said yesterday as optimism surged worldwide thanks to a new US banking plan. “The situation remains extremely worrying and difficult. It is the first setback for the world economy in over 50 years,” Strauss-Kahn said during an International Labour Organization meeting in Geneva, days after the IMF forecast that the world economy would shrink up to 1.0 percent this year.

Strauss-Kahn described the situation as “dire” and noted that the crisis would affect “dramatically unemployment for many countries. It will be at the roots of social unrest, some threats to democracy and maybe for some cases, it can also end in war.”

He urged authorities not to let the crisis degenerate into massive long-term unemployment for millions of workers. “This crisis must not be allowed to become a wasteland of unemployment,” the IMF’s managing director said.

The ILO in January said the global financial and economic meltdown could claim up to 50 million jobs by the end of this year. Meanwhile, the World Bank has also warned that the crisis could also push 46 million back into poverty.

Strauss-Kahn stressed that emerging countries must be lent support to rebuild their economies so as to arrest the descent of millions into poverty. His gloomy assessment on the current economic situation was a sharp contrast to optimism in the financial markets, which gained sharply on a massive new bank bailout plan unveiled by the US government.

Strauss-Kahn highlighted the importance of cleaning up the financial sector, saying “you can put in as much stimulus as you want, but it will just melt in the sun as snow if … you are not able to have a … healthy financial sector.”

He assessed that “a recovery is possible in 2010, but it depends on some conditions, namely that all policies will be implemented,” he said. Among these policies are those aimed at boosting demand. Such measures are essential since “monetary policies have reached their limits” and central banks have already had to turn to unconventional methods to stimulate growth. “But we must act now,” he stressed, a week before leaders of G20 emerging and industrialised nations are due to meet in London to find solutions to the crisis.