Paris - International Monetary Fund Managing Director Dominique Strauss-Kahn said on Friday global financial stability had taken a blow from the subprime crisis and European and US growth will be weaker as a result.
Dominique Strauss-Kahn, Managing Director of the International Monetary Fund (IMF) attends a news conference in Berlin, December 19, 2007. Strauss-Kahn said on Friday global financial stability had taken a blow from the subprime crisis and European and US growth will be weaker as a result. [Agencies]
"Stability has taken a blow," Strauss-Kahn said in an interview on French RTL radio.
"We know that it (growth) will be hit. We know that it will be weaker. Is this reduction in growth in the United States and Europe massive? Not yet, not yet," he said.
"The effects that we can measure, notably at the IMF, are significant. Growth will be weaker. It will not necessarily be catastrophic, it will continue to exist."
The IMF last week praised global central banks' coordinated efforts to address the credit crunch, and said monetary policy needed to remain flexible.
The US Federal Reserve, in a concerted action with the European Central Bank, the Swiss National Bank, the Bank of England and the Bank of Canada, attempted to tackle elevated short-term funding pressures by injecting cash to banks through auctions and currency swaps lines with the European and Swiss central banks.
The financial market upheaval has left banks reluctant to lend to each other, forcing them to turn to short-term capital markets instead. Efforts by the central banks were aimed at boosting liquidity to ease that strain.
"World growth will continue to be strong, but stalled in the United States and in Europe," Strauss-Kahn said.
He added that there was still an element of uncertainty.
"If tomorrow, some enormous banks reveal things that we do not yet know -- and I just said that we do not know everything -- there will be a different appreciation. The risk is therefore present," Strauss-Kahn said.
"But for the moment, from what we know, the transmission of this financial crisis to the real economy, that is to say the behavior of companies, of individuals, has not yet resulted in a massive reduction in growth," he said.
Asked about France's growth forecast for 2008, which predicts that gross domestic product will increase by between 2 and 2.5 percent, Strauss-Kahn was skeptical.
"As in all countries, that forecast will be difficult to reach," he said.
"It could be that the end of 2008 is a rebound moment if we see after six months that all the accounts have been balanced and confidence returns," he said.