2009 to be "really bad": IMF chief

The head of the International Monetary Fund (IMF) has presnted a very dismal forecast of the days to come even as he urged governments to pump more money into their economies or face a worsening downturn.

Dominique Strauss-Kahn warned that the measures announced by the G20 nations in Washington last month might not be enough to kick-start the global economy. Strauss-Kahn added that the IMF might next month revise down economic growth forecasts for 2009, which have already been cut from 3 per cent to 2.2 per cent.

He warned that 2009 would be "a really bad year". "I'm specially concerned by the fact that our forecast, already very dark... will be even darker if not enough fiscal stimulus is implemented," he said in an interview to BBC Radio 4. He said that the "whole of society" was going to suffer during the forthcoming recession and indicated that there may be social unrest.

He admitted that he found the British Government's high levels of borrowing "disturbing". However, the head of the influential international body said that the increased borrowing was necessary to fund tax cuts and increased public spending to help the economy recover. (See: UK's public sector borrowing soars to £16 billion in November)

"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 per cent of GDP, which is 1.2 trillion dollars," he opined.

Strauss-Kahn also rejected the argument of Germany's finance minister, Peer Steinbrück, who caused a diplomatic incident a fortnight ago when he described Gordon Brown's plan, underpinned by a cut in VAT, as "crass Keynesianism".

"I understand the traditional view of the Germans, but nevertheless I think we are in a time when we should be a bit more imaginative then we have been," said Strauss-Kahn. European Union leaders ignored Steinbrück's comments earlier this month and agreed a €200 billion stimulus package, funded by measures including tax cuts and the acceleration of public spending projects. (See: EU planning €200 billion stimulus)

The IMF has predicted that Britain will suffer its first full-year of recession since 1991. It expects this country to suffer the sharpest recession of any of the major economic powers in the world with the British economy shrinking by 1.3 per cent. (See: IMF downgrades UK's growth rate, says inflation pressures to continue)

Strauss-Kahn said the reduction in US interest rates to 0.25 per cent last week would not be enough to revive the world's largest economy, and a stimulus plan, being drafted by the incoming administration of president-elect Barack Obama, will be needed. He said the Federal Reserve rate cut was "welcome" but added: "It can't be considered enough. That's why we need to use the other tools we have in our tool-kits - namely a fiscal stimulus." (See: Fed cuts rates to near zero per cent)