America’s economy should move into a recovery phase by the end of 2001, opined the International Monetary Fund yesterday. The forecast was made in the face of last week’s catastrophic events in New York and Washington DC, as well as the collateral slump in the airline industry.

However, IMF managing director Horst Köhler qualified his prediction, warning that global recovery is prone to be “a bit less strong than expected”. He told reporters: “There is no doubt that the downside risks have increased. Uncertainties are higher than before and the impact on confidence, particularly consumer confidence and business confidence, will be crucial.”

However, Köhler stressed that official recession is unlikely and that the IMF would not downgrade its minimum forecast for global economic growth of 2.5 per cent.

He did, however, caution that recovery did not rest with the US alone: Europe and Japan could not rely on the US to lift the world economy towards higher growth. Although welcoming the decision by the European Central Bank this week to cut interest rates, Köhler believes more could be done, “particularly by the economic policy people in accelerating structural reforms.”

The Japanese monetary authorities, especially, should apply “even more aggressive monetary easing,” he said, and also be visibly tackling bad loans within the banking sector. “I think there is an awareness that the time is over for talk and the time is now for taking action.”

Köhler continued: “I do think the decisions of the central banks in the US, Europe and all over the world to inject liquidity and cut interest rates is not only a powerful demonstration that there is a policy response but that this policy response will have a positive impact. It's a matter of time, not a question of if.”

News source: Financial Times