IMF sees encouraging signs but stimulus must stay

By Daniel Flynn

ROCCA DI PAPA, Italy (Reuters) - There are encouraging signs from the U.S. and some European economies but the global crisis is not over and stimulus must remain in place until unemployment recedes, the IMF's managing director said.

Dominique Strauss-Kahn said that to avoid the risk of a double-dip recession governments must continue fiscal and monetary stimulus until unemployment peaks, which he said was likely to take 10-12 months.

Stock markets rallied on Thursday after U.S. data showed the world's largest economy expanded by a greater-than-expected 3.5 percent in the third quarter, ending a year of declines and raising hopes the global crisis was almost over.

"There are some encouraging figures, a few months ago from European countries and yesterday from the U.S. and that's all good news," Strauss-Kahn told a news conference near Rome on Friday.

"Nevertheless it does not mean the crisis is over. The crisis will not be over until unemployment begins to decrease and that will take many months."

While he said the financial part of the crisis appeared to have ended, with little risk of further collapse among financial institutions in the near future, Strauss-Kahn said that private demand for goods and services remained very weak.

"If we want to avoid, which I think we will avoid, the risk of a double-dip, it's absolutely too early to withdraw the different stimulus which have been put in place," he said.

"In the 10-12 coming months, unemployment will continue to rise ... that's why we have to go on with the monetary and fiscal policies, the stimulus, until unemployment decreases. At that time we can declare victory," he said.