Köhler expresses optimism about recovery, citing improvement in fundamentals Köhler optimistic on world economic recovery

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Uncertainties about the economy are higher in the wake of the terrorist attacks on New York and Washington on September 11, IMF Managing Director Horst Köhler said.He noted, however, that the IMF still expects the U.S. economy and the global economy to recover-perhaps early next year-although the recovery could take longer and be less strong than had been thought some weeks or months ago. Köhler was speaking at a press briefing on September 19 in Washington, during which he answered a number of questions about the prospects for the global economy and for individual member countries.

The IMF's cautious optimism is based on the improved fundamentals that were already present in the global economy, the policy response that has taken place, and the scope for further policy adjustments, if necessary, to strengthen the prospects for sustained recovery. For example, Köhler said, there is scope for further monetary and fiscal policy easing in most of the advanced countries because budgets are broadly under control and inflation does not appear to be posing any acute problems. External positions have also improved in most emerging market countries, with most maintaining flexible exchange rates. (See also the report on the World Economic Outlook press conference, this page.)

Despite the difficult situation in the global economy, he noted that the decisions of central banks around the world--to inject liquidity and cut interest rates--were a powerful demonstration of a policy response that would have a positive impact. International financial markets have continued functioning, further evidence of their increased resilience. Köhler also emphasized his belief that new technologies andPage 312 the potential for productivity gains had not yet been fully exploited, particularly in Europe. In addition to information technology, the world is on the brink of realizing more potential from biotechnology and communications technology. This is yet another reason, Köhler said, "that I feel we should not exaggerate pessimism."

In response to an observation that the health of the U.S. economy seems to be key to that of the global economy, Köhler pointed out that, for too long, European and Japanese policymakers had "underestimated the spillovers from the slowing in the United States."More than ever, he said, they must know that they cannot rely on the United States, but must use their own means to strengthen growth prospects.

In other regions of the...