Global economy to recover in 2009, IMF says

Global economic recovery is not expected until the beginning of next year, leading economists warned Wednesday at the Facing Tomorrow conference in Jerusalem.

"Today we can possibly say that a large part of the global financial crisis is behind us, but we cannot say that the economic crisis is over," International Monetary Fund managing director Dominique Strauss-Kahn said. "Our forecast is rather pessimistic and we don't see a recovery or an end to the economic slowdown before the beginning of 2009."

The US subprime mortgage crisis had penetrated the global financial sector, he said, adding, "We are experiencing a confidence crisis which is putting a large part of the financial market on freeze."

Abby Joseph Cohen, a senior global strategist at Goldman Sachs, said the appetite for risk was virtually non-existent in recent months.

"If no one is prepared to invest, not much can happen in the economy," he said. "However, we are now seeing signs that volatility on the markets is starting to stabilize and markets are behaving more normally. Some lenders have come back to the market and some banks are starting to lend."

Cohen said the US economy was expected to stabilize in the second half of this year and show positive growth in 2009.

The pain of the US subprime mortgage crisis is not over, but we are seeing signs of a recovery" he said. "We expect 2009 to be a year of economic growth. It won't be 4 percent, but there will be a plus in front of it."

Jacob Frenkel, vice-president of American International Group Inc. and chairman of the Group of Thirty consulting board of economists and former Bank of Israel governor, said the US economy had avoided falling into a deep recession.

"Without the boom in the export sector," he said, "the US economy would have been in a deep recession."

Strauss-Kahn warned that amid the global financial crisis, policymakers should not underestimate that the global currency imbalances, the rise in commodity prices and the cost of food could fuel inflation.

"More importantly, policymakers should focus on the humanitarian and economic consequences of the rise in food and oil prices, which in the past have caused riots, creating a peace problem," he said.

Regarding the prospects of the Israeli economy in 2020, Cohen emphasized the importance of investment in education.

"The state of the Israeli economy in 2020 depends on what the education system will look like, whether students are trained for professions relevant for available jobs and whether there are resources for retraining," he said. "The measurement of disparity between low- and high-income levels has reached a record level in Israel. Recent data shows that unemployment is low or near 0% among the educated population and double-digit percentage among the low-educated population."

Strauss-Kahn said maintaining high levels of growth would be dependent on an improved regional outlook, including political flexibility and stability with the country's neighbors.

"Israel can not only rely on the forces of globalization," he said.