MADRID (Reuters) - The U.S. economy looks set to pick up next year or early in 2010, although this scenario is by no means certain, the IMF Managing Director Dominique Strauss-Kahn said in a newspaper interview on Thursday.
“There is a reasonable probability ... of the U.S. economy starting to recover at the end of 2009 or the start of 2010,” he told Spanish newspaper Expansion.
He based this view on the likelihood that the housing market has touched a low point and as demand reacts to fiscal stimuli but added: “We recognize, however that the possibility of a recovery is plagued with uncertainty.”
If the U.S. housing market continued to fall then deflation could not be ruled out, the former French finance minister said.
“We are faced with an abrupt fall in activity and we should use all instruments available with the aim of simultaneously tackling three aims, the first restoring the stability and confidence of national financial markets.”
He reiterated that the IMF would cut its current 2.2 percent forecast for global growth next month and again criticized governments for not providing sufficient economic stimulus to lift consumer confidence.
The European Union’s plan to spend the equivalent of 1.5 percent of the union’s GDP was too timid, he said.
The IMF recommends global governments spend a combined 2 percent of global gross domestic product or $1.2 trillion to reduce the risk of a damaging global recession.
Strauss-Kahn also said that China’s currency, the renminbi, continued to be undervalued and should be revalued. Its recent devaluation was a deviation from a long-term trend, which was triggered by the economic crisis, he said.
“China is one of the countries making the biggest effort to spur on internal demand and seems open to participate in a collective effort and assume its share of responsibility in the fight against the crisis,” he said.
Strauss-Kahn praised the reaction of central banks to the crisis, led by the U.S. Federal Reserve’s decision to chop its benchmark rate to near zero on Tuesday.
However, he added that there were limits to the ability of monetary policy to stimulate demand as new liquidity was being hoarded and he said the world needed fiscal stimulus.
Reporting by Ben Harding; Editing by Victoria Main