Financial crisis: Worst may be still ahead, says IMF chief

Strauss-Kahn referred to credit growth as a sign that financial activity was beginning to pick up

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Ashley Seager, economics correspondent guardian.co.uk,
Monday 15 June 2009 08.49 BST


IMF managing director Dominique Strauss-Kahn urges caution over green shoots. Photograph: Karen Bleier/AFP/Getty images

The worst may yet lie ahead for the world economy in the current financial crisis, the head of the International Monetary Fund warned today.

Speaking during a trip to Kazakhstan, Dominique Strauss-Kahn said he largely agreed with the weekend conclusion of finance ministers from the G8 nations that the global economy was showing signs of stabilising after the worst financial crisis since the 1930s.

"Their ( G8 ) stance is that we are beginning to see some green shoots but nevertheless we have to be cautious," he said in opening remarks before closed-door talks with the Kazakh prime minister, Karim Masimov. "The large part of the worst is not yet behind us."

G8 ministers discussed at a meeting in Lecce, Italy, this weekend how to begin withdrawing the extraordinary stimulus they have injected into the world economy in the shape of record low interest rates, big budget deficits and flooding their economies with money.

Strauss-Kahn referred to credit growth as a sign that financial activity was beginning to pick up but did not say whether the IMF was ready to help with a possible "exit strategy" once economic recovery is certain.

Dollar gains

The dollar rose broadly against other currencies today in the wake of the G8 meeting and after Russia said the US currency's role as the world's main reserve currency was unlikely to change in the near future. Russia had last week raised the idea of moving some of its reserves out of US treasury securities.

The CBI warned today that Britain's recovery will be delayed until 2010, and cast doubt on the view increasingly held in the City that recent "green shoots" of recovery mean the recession is all but over.

Richard Lambert, the CBI director general, said the UK would suffer from the worsening of the world recession, which would continue to limit lending by banks and drag down consumer spending in the UK's export markets.

Separately, Eurostat reported that eurozone employment plunged by a record 0.8%, or 1.22 million people, in the first quarter from the fourth quarter of 2008. That was twice the drop seen in the fourth quarter and the third successive quarterly drop in employment.

As a result, eurozone employment was down by 1.2% year-on-year in the first quarter of 2009. All of the major eurozone economies suffered employment declines in the first quarter, particularly Spain.

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