IMF head calls for more spending

12 April 2012

Governments around the world need to spend more to head off the threat of recession, the head of the International Monetary Fund (IMF) has said.

Dominique Strauss-Kahn told the BBC that under normal circumstances he would oppose sharp increases in state debt, but now saw it as the lesser of two evils when faced with the worst global economic downturn in 60 or 70 years.

He rejected the argument of German finance minister Peer Steinbruck that the British Government is making a "breathtaking" mistake by hiking up borrowing in order to inject money into the economy.

More spending by governments was necessary to stimulate economic growth, said Mr Strauss-Kahn, forecasting that 2009 would be "a really bad year".

The IMF chief told BBC Radio 4's World This Weekend: "I'm specially concerned by the fact that our forecast, already very dark... will be even darker if not enough fiscal stimulus is implemented."

Measures announced so far by the G20 countries following last month's economic emergency summit in Washington may not be sufficient to revive the global economy, he warned. It would take a spending stimulus equivalent to about 2% of global Gross Domestic Product, or about 1.2 trillion US dollars (£800 billion), to make a real difference.

"The problem is that all the whole society is going to suffer," he said.

In November, the IMF lowered its global economic growth forecast for 2009 from 3% to 2.2%, and Mr Strauss-Kahn today said that the prediction would probably be reduced further in January.

"We see 2009 as really being a bad year with recession for most advanced economies and growth decreasing for emerging economies," he said.

"At the G20 in Washington a few weeks ago, all the heads of state and government seemed to be aware that something has to be done and I can see that some measures have been announced, but I'm afraid it won't be enough. Our estimate is that we need a stimulus of something like 2% of GDP, which is 1.2 trillion dollars."

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