The head of the IMF has said that the global economy was at a critical juncture but decisive action from the US Federal Reserve, and hoped-for interest rate cuts in Europe, should prompt a rebound in economic growth in the second half of this year and into 2002.
In an interview ahead of the International Monetary Fund's spring meetings, IMF Managing Director Horst Koehler said that while there were elements of 'uncertainty' and 'unpredictability' to the US economic outlook, there was a 'good degree of probability' that the US rebound will materialise.
'The world economy is certainly in a quite critical phase,' Koehler said. 'There is a deceleration of economic activity in the US, which is stronger and faster than most had expected a month ago, and there is no region all over the world which is taking up the slack which means there is a slowing down of the global economy,' he said.
But despite the dark prospects, the German remained upbeat, saying he felt it wrong to 'paint everything in negative terms or colours.' Indeed, Koehler said that while business confidence was hurt in the US, consumer confidence, automobile sales and home sales were still strong.
Just last September the IMF had forecast that the world's richest economy would grow by 3.2% in 2001. But in recent months the US economy has slowed dramatically and the IMF is expected to forecast US growth for this year of just 1.5% when it publishes its economic forecasts on Thursday.
In response to that slowdown, the US Federal Reserve has slashed interest rates by two full percentage points to try to reignite growth in the economy, which has expanded for an unprecedented decade.
While Koehler was fulsome in his praise of the US central bank, he was less effusive about European counterparts. Nevertheless, he said the global rebound was possible if the right policies are enacted, particularly in Europe.
The head of the global lender said the IMF would like the European Central Bank to cut interest rates there, to boost prospects in Europe and globally. While he said he hoped to reach a common understanding with European officials this weekend about the need for lower interest rates, he stressed that he respected the central bank's independence.
