World recovery will be slower than expected, says IMF chief

Horst Köhler, the International Monetary Fund's managing director, yesterday warned on the prospects for the world economy, though US data seemed to point towards a recovery.

"The world economy is currently in a difficult situation because there is widespread uncertainty," Mr Köhler said in a speech in Berlin.

"The basic view of IMF economists remains that in the coming months we can expect an upwards development, but slower than was hoped some weeks ago, and with the risk there could be further setbacks."

Mr Köhler said he thought the US economy was strong enough to avoid a double-dip recession. However, he said more must be done to counter the fallout of the bursting of the financial bubble of the late 1990s.

"From today's point of view one must see the policy of deregulation of financial markets that came out of the United States in the 1980s as being a bit naive," he said. "We, therefore, have to work so that in the future the hubris and excesses of capital markets can be better countered."

Referring to other parts of the world, Mr Köhler said Germany urgently required structural reforms to boost its spluttering economy. "Otherwise Germany will not pick up."

Mr Köhler urged Argentina to take responsibility for managing its financial crisis after it defaulted this week on its World Bank debts – in protest at being unable to get the IMF to agree to a massive roll-over of debt.

"Even in a crisis situation taking responsibility for oneself is unavoidable, such as in the case of Argentina," he said.

In the US, conflicting economic data was released but some of the figures pointed towards a rebound. The Producer Price Index surged unexpectedly in October, up 1.1 per cent, compared with expectations of a 0.2 per cent increase and a rise of just 0.1 per cent in September.

Gary Thayer, the chief economist at AG Edwards in St Louis, said: "The notion of deflation will probably be put on the back burner for a while. The economy is holding up."

Much of the increase was put down to one-off car deals and the rise in the price of oil.

Chris Rupkey, an economist at Bank of Tokyo-Mitsubishi in New York, said: "It seems to fly in the face of everything that we're hearing that manufacturing and manufacturers are on the ropes."

US consumer sentiment, measured by a University of Michigan index, bounced in early November from a nine-year low as stabilisation in the job and stock markets, and a half-point interest rate cut by the Federal Reserve, lifted spirits.