Premature Exit May Stall Global Recovery

Calls for continuing stimulus measures until the global economy recovers with sustainable growth, strengthened Friday, when the International Monetary Fund Managing Director Dominique Strauss-Kahn and European Central Bank President Jean-Claude Trichet voiced their support.

Speaking at the sixth annual Bundesbank Lecture in Berlin, Strauss-Kahn said he sees a real danger that policymakers may jeopardize the recovery by exiting from crisis measures too soon. But, he said it is the right time for policy makers to formulate their exit strategies.

The IMF official said, “Given the fragility of the recovery, there are risks that it could stall.”

A day earlier, Australian Treasurer Wayne Swan raised similar concerns saying that a premature withdrawal of stimulus measures would stall global recovery. He said Australia would gradually withdraw their stimulus measures in the last quarter of this year and would continue it through to 2011.

Meanwhile, Strauss-Kahn stated that early exit from accommodative monetary and fiscal policies is a principal concern. In addition, problems in the financial sector could persist or even intensify further, particularly if efforts to restore banks to health are not completed.

“Now is not the time to exit. But I would like to make it clear that the ECB has an exit strategy, and we stand ready to put it into action when the appropriate time comes,” Trichet said at the ECB Watchers conference in Frankfurt. He stressed that it would be premature to declare that the crisis over.

Trichet noted that the ECB’s non-standard measures, introduced to address the financial crisis, were designed with exit considerations in mind.