Although the impact on the broader economy will likely drag on in coming months, the worst of the financial sector crisis is over, IMF managing director Dominique Strauss-Kahn said on May 15. "There are good reasons to believe that the largest part of disclosure in financial institutions has been done, especially in the U.S. ... so that the worst news is behind us," he told a panel at the European Parliament.
However, Strauss-Kahn acknowledged later at a conference on the euro that it was impossible to know exactly whether the worst of the financial crisis was over or not because there were good reasons to argue that it is not. "We don't know exactly where we are," he said, adding that there was a sound argument that because "the housing market in the U.S. still has prices going down ... the source of the problem is still there."
While past financial crises tended to be triggered by problems in developing countries, often with current account problems, Strauss-Kahn warned that in the long-term, the recent turmoil would likely be "a taste of the new kind of crisis that we are going to face."
With big developed economies such as the U.S. and Europe slowing following the turmoil, Strauss-Kahn said, emerging countries would be the biggest motors behind world growth this year. Nevertheless, he insisted that such fast-growing economies would also eventually feel the impact of the slowdown in rich countries, although perhaps with "some delay."
Strauss-Kahn said the coming months would reveal just how well the European economy can hold up. "The resilience of the European economy is at stake," he said. "The slowdown of 2001 is not very assuring -- it took a lot of time to recover.
The eurozone economy rebounded with unexpected growth of 0.7% in the first quarter this year, according to initial official estimates issued May 15.
Copyright Agence France-Presse, 2008
