MADRID: The International Monetary Fund chief warned yesterday of a global recession but said the world economy could begin to recover in late 2009 or early 2010 after “a very difficult year.”
“The global outlook will continue to deteriorate,” IMF Managing Director Dominique Strauss-Kahn told a symposium in Madrid organized by the Bank of Spain.
“The possibility of global recession is really in front of us.”
He said declining growth in emerging countries such as China would not make up for recessions in developed countries.
“We are facing an unprecedented decline in output and we have evidence of substantial uncertainty limiting the effectiveness of some fiscal policy measures,” he said.
“The most urgent need is a big foot on the accelerator of fiscal expenditure.” He said “2009 will be a very difficult year,” but by “late 2009, early 2010” the global economy should begin to recover.
The IMF last month forecast that advanced economies would contract next year for the first time since World War II and called for government spending to battle the global financial crisis. It lowered its global economic growth forecast by 0.8 point to 2.2 percent.
“We started with China at 11 percent growth, then 8, then 7, then China will probably grow at 5 or 6 percent,” he told the Madrid conference. “The possibility of a global recession is real, we realize something must be done.”
He said the world needed stimulus measures of around 2 percent of its GDP — $1.2 trillion — to reduce the risk of a damaging global recession, and that the global financial sector must share wealth around more broadly.
“If we are not able to do that then social unrest may happen in many places, including advanced economies,” he said. China in particular fears unrest if growth falls below the 8 percent it says it needs in order to create enough jobs for the millions of people moving to cities from the countryside.
Its annual industrial output growth slowed to 5.4 percent in November — the weakest figure in at least nine years for a non-holiday month and down from 8.2 percent in October.
“Next year’s employment market will be very serious, affected by the international financial crisis,” Xinhua quoted Chinese President Hu Jintao as saying. Bank of Japan Governor Masaaki Shirakawa told the Financial Times the economy might shrink in the year to March 2010, where the bank previously expected a slim recovery.
Last week’s collapse of auto bailout talks in the US Senate sent world markets reeling.
Investors fear a failure of any of the automakers would exacerbate a US recession and drag other companies under.
President George W. Bush told reporters aboard Air Force One yesterday that while some funds earmarked to shore up the US finance industry could be diverted to automakers, no announcement was imminent. Over the weekend carmakers elsewhere produced dire warnings about the state of their sector.
Martin Winterkorn, CEO of Europe’s biggest carmaker, Germany’s Volkswagen, told yesterday’s Sueddeutsche Zeitung newspaper that its sales could fall about 10 percent next year in a global market expected to fall around 20 percent. The joint general secretary of Britain’s Unite trade union, Tony Woodley, said up to 40,000 car industry jobs could go in Britain in the next four weeks unless the government intervenes. Japanese media said the world’s largest carmaker, Toyota Motor Corp., was set to report a loss of about 100 billion yen ($1.11 billion) for October-March.
Robert Bosch, the world’s biggest car parts firm by sales, said it planned to cut up to 2,000 jobs.
“We have not touched the bottom yet,” said Carlos Ghosn, chief executive at French maker Renault and its Japanese ally Nissan Motor.
French President Nicolas Sarkozy was meeting Ghosn and Christian Streiff of PSA Peugeot Citroen yesterday, after promising to help the carmakers if they promised not to move jobs abroad. Renault, PSA and others are shedding thousands of jobs in France and elsewhere in Europe as they cut output. The Sunday Times said Britain was considering low-cost loans or loan guarantees for car companies to try to revive sales.
In Sweden, Electrolux, the world’s second-biggest home appliances maker, said it would cut more than 3,000 jobs globally.While markets looked for more state support for the global economy, European Central Bank President Jean-Claude Trichet urged European policymakers not to tear up euro zone rules on public deficits and debt levels when launching rescue packages.
Fiscal indiscipline could threaten already fragile economic confidence and increase the nervousness of capital markets about governments’ funding needs, he told the Financial Times.