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IMF banks on stimulus packages to bolster wor -

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PETER CAVE: Looking at the wider picture the International Monetary Fund has upgraded its growth
forecast for the world's economy next year but it warns that any recovery will be sluggish. It says
that the global recession is not yet over and that the banking system remains fragile.

The IMF says the stimulus packages put in place by governments need to be maintained to keep any
recovery going. The G8 also says the world is not out of the woods yet and more stimulus measures
may be needed.

Finance reporter Sue Lannin.

SUE LANNIN: Forecasting is a fraught profession. The International Monetary Fund was criticised for
being late to call the Great Recession. Now it thinks the forces pulling the global economy down
are decreasing.

Olivier Blanchard is the IMF's chief economist.

OLIVIER BLANCHARD: The global economy is still in recession but we're inching towards the recovery
and so in terms of our forecast for 2009 we have the global economy going down by 1.4 per cent. And
then for 2010 we have it going up by 2.5 per cent.

SUE LANNIN: Its calculations are different from those of the World Bank which says the global
economy will shrink by nearly 3 per cent this year and will grow about 2 per cent next year.

Westpac international economist Huw McKay thinks the IMF forecasts are on track.

HUW MCKAY: Well I think their 2009 numbers, they're distinctly rational. They have a good balance
between some extreme weakness in those balance-sheet constrained economies in the developed world,
the US, the Euro area and the United Kingdom versus some modest optimism I suppose on the Chinese
and Indian stories.

SUE LANNIN: Their figures are quite different though from the World Bank figures but I believe the
use different models.

HUW MCKAY: Well yes indeed. I think that the World Bank and the International Monetary Fund have
slightly different views of the world given their different mandates and that does flow through to
the way they actually end up compiling their forecasts.

One of the key emphases in the World Bank report was on the collapse in capital flows to developing
countries and that is something that the IMF certainly monitors but I think they have chosen to
deemphasise that angle in that report and they're focusing more on structural underlying growth

SUE LANNIN: The IMF's figures for the industrialised world are not good. Advanced economies are
expected to contract by nearly 4 per cent, Germany and Japan by around 6 per cent.

Mark Thirlwell is the director of the international economy program at the Lowy Institute.

MARK THIRLWELL: I think that story of you know of a very bad 2009 for the world economy and a 2010
that looks better, that you get some growth but it still doesn't look great but it's going to have
global growth even though it's going to pick up in 2010 but we'll still be well below what we're
used to - that story makes sense to me.

SUE LANNIN: Two-and-a-half per cent growth for the global economy is in fact not very much is it?
It's almost a recession.

MARK THIRLWELL: That's right. I mean before the crisis we got used to seeing a world economy that
was growing somewhere between 4 and 5 per cent. So we were used to seeing it growing quite rapidly.

Something that's chugging along at 2.5 per cent is a world economy that's running well below
capacity. You know it's a bit above stall speed but it's still not great. It's just going to look
good compared to what we were seeing this year.

SUE LANNIN: Jose Vinals the head of the IMF's capital markets division warns the world's financial
system is still fragile.

JOSE VINALS: In spite of these improvements there are areas of concern, there the leveraging
process is still continuing. Banks' balance sheets are still continuing to be put into pressure as
a result of the expected bank write-downs that will come out.

SUE LANNIN: The Group of Eight industrialised nations says the world is not out of the woods yet
and stimulus measures must continue.

French President Nicolas Sarkozy says the economic crisis is far from over.

NICOLAS SARKOZY (translated): The first thing to report is that although there are signs of
stabilisation the economic crisis is far from over and that's the unanimous analysis of all the
members of the G8.

The second thing to say is that we must put in action the stimulus plans that we had already agreed
upon. It's certainly not the time to loosen our efforts.

SUE LANNIN: Olivier Blanchard says countries have to keep interest rates low and money flowing to
their economies while considering how to end the life support.

OLIVIER BLANCHARD: We have to continue with the fiscal monetary financial policies which we have
put in place in the last nine months. So yes, it's much too early to take them off. We have to
start thinking about the exit policies from the crisis on the fiscal front, on the money front, on
many fronts.

PETER CAVE: Olivier Blanchard the chief economist from the International Monetary Fund. Sue Lannin
was our reporter.