IMF expects ‘slow and weak' recovery

Recovery from the global economic downturn is likely to be “slow and weak”, even if governments pull out all the stops on fiscal stimuli, monetary policy and financial sector repair, the International Monetary Fund said yesterday.

It said monetary policy had not been very effective in combating recessions associated with financial crises in the past, probably because of the damage to the financial sector. By contrast, fiscal stimuli by countries with moderate debt levels had proved to be “particularly helpful” in fighting such downturns.

“Governments can break the negative feedback between the real economy and financial conditions by acting as spender of last resort,” the IMF said.

But this strategy may not work for countries with high levels of debt, the fund said, weighing into a debate that has divided the pro-stimulus US administration and deficit hawks in Europe.