Foundry Daily News

USA - Recession reports - Worst economic crisis yet to come - IMF

International Monetary Fund's top economist Mr Olivier Blanchard told a Swiss newspaper on Saturday that the financial crisis that has engulfed many top banks is spiraling into a broader economic crisis that has yet to peak.

Mr Blanchard said the crisis would continue for another year and called on governments to promote fiscal expansion and on central banks to cut rates towards zero.

He said "The worst is yet to come. This is only the beginning."

He added that "The risk exists that the data will get worse and worse, which would then lead to more pessimistic expectations and accelerate a fall in demand. It will take a long time before we go back to normal conditions." Blanchard said the crisis should last for another year, but normal growth would return only in 2011.”

He said that "For 2009 we forecast negative growth on average in the industrialized nations. In 2010 there should be a recovery and we should go back to normal in 2011."

Mr Blanchard said governments have up until now not done enough to address the crisis and called for fiscal stimulus both in the United States and Europe. He said that "In normal times the IMF would argue that budget deficits must be reduced. But we are not living in normal times. Demand has collapsed. This is why a broad fiscal expansion is needed.

Mr Blanchard said central banks should cut rates as much as possible to avert the risk of a "Great Depression" scenario. He said that "They have to lower interest rates and bring them as close to zero as possible," he said. "We have to use all the ammunition that we have in order to limit the collapse of demand."

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