TOKYO, Jan. 18 (Reuters) – Some countries may suffer double-dip recessions if they exit strategies taken to battle the global financial crisis too early, the head of the International Monetary Fund said on Monday.

Recovery in private demand and employment are necessary conditions for governments to begin exiting policies designed to support their economies, although the appropriate timing depends on specific conditions in each nation, Dominique Strauss-Kahn said.

''Recovery in advanced economies has been sluggish,'' he said.
''We have to be cautious because the recovery has been fragile.''

Tackling high levels of public debt will become top priority for many governments, he continued.

But he added that too early an exit from stimulus measures could backfire as countries may not have the tools to deal with a renewed downturn after using both fiscal and monetary stimulus measures after the crisis.

''It would be difficult to find new tools,'' Strauss-Kahn told reporters in Tokyo.

''The best indicator is private demand and employment ... In most countries, growth is still supported by government policies.

For as long as you do not have private demand strong enough to offset the need of public policy, you shouldn't exit,'' he said.

The IMF in October forecast global growth would resume and hit 3.1 percent in 2010 after contracting in 2009.

Strauss-Kahn reiterated that the economy has been stronger than expected, led by emerging economies in Asia.

Earlier, the World Bank's chief economist warned the global economy may suffer a double-dip recession.

"The foundation for the recovery is very fragile," Justin Lin told the Council on Foreign Relations.

"We may have a double dip," he said, citing excess global capacity that could linger until 2014.

Beyond the weak economic fundamentals underlying the emergence from recession, Lin said he is also concerned that the world economy is entering "uncharted waters."

In an environment of low interest rates and excess capacity, most of the liquidity could go into speculative investments, he said.

Other risks are that banks continue to hold bad debts on their balance sheets, as well as an potential rise in protectionism, said Lin.

While rising debts from fiscal stimulus is also a concern, it will only become an issue if the spending doesn't boost productivity, he said.

Countries should ensure their stimulus is enhancing productivity, and possibly even consider a second round of stimulus, he said.
That is more practical for emerging economies, since high-income countries are limited in their ability to boost productivity and low-income countries don't have fiscal space.

Lin also reiterated his call for advanced economies to help finance stimulus in low-income countries, saying that funneling money where the economic bottlenecks are the greatest would help lead to a more sustainable global recovery.