IMF chief Dominique Strauss-Kahn said on Friday that government stimulus was still needed to prop up the global economy because of rising unemployment and a still-damaged financial sector.
Strauss-Kahn told a news conference ahead of the International Monetary Fund and World Bank's annual meetings here that withdrawing stimulus too quickly would hamper global recovery.
Of course we have to think about it, we have to prepare the exit strategy, but it's not time to implement it. If some had the temptation of implementing the exit strategy too early, this situation could harm the recovery, he said.
In remarks to reporters earlier, Strauss-Kahn said Europe may recover more slowly than other regions as the global economy emerges from its slump because European economies are less flexible than some others.
Europe was less hard hit in a sense than the U.S. when growth dropped -- it held up better -- but it may also respond less quickly in the other direction, he said.
The economy is less flexible, so it goes down less fast but rebounds less fast. The rigidities of the European economies that protected them to an extent during the crisis may make the restart more difficult.
During the news conference and in his earlier remarks, Strauss-Kahn reiterated that the world should expect a pattern of weaker growth than it enjoyed pre-crisis, and warned there was still a danger that economies could turn down again, since unemployment was set to rise for many months in most countries.
He said there was a risk that governments would wind down emergency economic support steps, such as large fiscal stimulus and the provision of big sums of money to the banking system, too early.
My worry is governments say, 'That's it, we're out of the crisis, it's time to go back to normal' -- that would be the real error and it's one of the risks we must be sure to ward off, he told reporters.
Asked at the news conference about the idea of placing a tax on financial transactions to curb excessive risk-taking, Strauss-Kahn said a simplistic tax would not be a good idea.
I don't think that the very simplistic idea of just putting a tax on transactions will work; for many technical reasons I think it's very difficult to implement, he said.
But he said the idea of having the financial sector bear more of the burden of insuring against systemic risks was worth further study. The IMF will prepare a report on such special funding for the Group of 20 rich and developing economies, Strauss-Kahn added.
(Reporting by Brian Love and David Lawder; Editing by Ruth Pitchford)