IMF Predicts up to 1% Contraction in '09

The International Monetary Fund sees the world economy contracting by between 0.5 and 1 percent in 2009, Managing Director Dominique Strauss-Kahn said in an interview published on Wednesday.

He said a recovery could come in the first two quarters of 2010.

"If ... economic policies are appropriate, the recovery should come in the first two quarters of 2010," he told Spanish newspaper El Pais. 

The IMF said last month in two reports prepared for a meeting of Group of 20 nations this week that the global economy will shrink as much as 1 percent this year -- its first contraction since World War Two.

It forecast a gradual recovery in 2010.

Separately, Strauss-Kahn said it was possible the European Central Bank could resort to purchasing assets with newly created money to boost the money supply.

"I'm sure that, if necessary, it will not hold back, but be active against a fall in prices," he said. 

With regards to Spain, Strauss-Kahn said although Spanish banks were not directly exposed to U.S toxic assets they had created their own.

"I'm more worried about the consequences of the real estate boom on the Spanish banking system than the direct impact of U.S toxic assets," he said.

He said there could be problems with some Spanish banks needing government help although the system overall was healthy.

Spain on Sunday launched its first bank rescue of the global financial crisis to prevent solvency problems at unlisted savings bank Caja Castilla la Mancha (CCM).

Spanish banks' capital and liquidity levels are being worn down by limited access to money markets and soaring debt defaults during Spain's recession.

© 2009 CNBC.com