IMF boss Lagarde warns economy 'too weak for comfort'

 
IMF managing director, Christine Lagarde The global economy is "too weak for comfort", Christine Lagarde said

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The global economy could be heading for years of "sub-par growth", according to the head of the International Monetary Fund (IMF).

Christine Lagarde warned that without "brave action" the world could fall into a "low growth trap".

She said the global economy would grow by more than 3% this year and next, but that market volatility and tensions in Ukraine posed risks.

Ms Lagarde also urged more action to tackle low inflation in the eurozone.

'Unconventional measures'

Low inflation in the eurozone has been caused by the presence of a greater level of spare capacity in the economy, meaning it is not growing to its full potential due to underinvestment, compared to the US or UK.

The Bank of England believes the amount of spare capacity in the UK is equal to about 1% to 1.5% of overall GDP.

The strength of the euro relative to the pound and the dollar since 2012 has also lowered the cost of imports, forcing the price of goods to come down.

That has meant inflation in the eurozone is currently running at 0.5%, compared to 1.7% in the UK and 1.1% in the US.

The fear attached to lower inflation is it could harm the eurozone's nascent economic recovery, weakening consumer demand for goods and services as household's put off spending believing prices will continue to fall.

Low inflation also means that governments and businesses find it more difficult to repay their debts.

Ms Lagarde called on the European Central Bank (ECB) to pursue "more monetary easing, including through unconventional measures".

Eurozone warning

"There is the emerging risk of what I call 'low-flation', particularly in the euro area," she added.

"A potentially prolonged period of low inflation can suppress demand and output, and suppress growth and jobs."

Her advice to the ECB, in a speech on Wednesday, came the day before a meeting of the central bank's policymakers.

Economists do not expect them to announce any measures to reverse a drop in the region's rate of inflation, which fell to 0.5% in March, its lowest since 2009.

It was also the 6th month in what ECB President Mario Draghi has called "the danger zone" below 1%.

'Low growth trap'

The IMF's managing director said that global economic signs were positive overall, but that "without sufficient policy ambition, the world could fall into a medium-term low-growth trap".

She called for governments to reform labour markets to encourage job creation, and for more public investment such as transport and communications networks in rich and emerging countries.

In a speech seen as a precursor to the IMF's spring meetings in Washington next week, Ms Lagarde specifically referred to the US Federal Reserve's gradual winding down of monetary stimulus.

The US central bank is slowly reducing the rate at which it buys bonds, which has been pumping money into the country's economy.

But it has had a damaging impact on emerging markets, as investors withdrew money back to the US in the hope of achieving higher interest rates.

Ms Lagarde said there needed to be greater cooperation among policymakers to limit the impact of the Fed's tapering, and warned the problem could also "spill back" to the US.

She also warned the situation in Ukraine could have "broader spillover implications" if not well managed.

The IMF last week announced financial support of $14-18bn (£8.5-£11bn) for Kiev in exchange for tough economic reforms.

 

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  • rate this
    0

    Comment number 145.

    The dissolution of the Eurozone plus the United States not trying to pick a fight with the Russians would go a long way toward solving this crisis. As long as we're trying to expand, there will be conflict which is good for none but the few on top, namely the war profiteers.

  • rate this
    0

    Comment number 144.

    #139 Mr W

    " laws and social idealism have only served to weaken the region ."

    --not incompetent national governments --UK included ?

  • rate this
    0

    Comment number 143.

    My goodness...is this woman just paid to utter doom and gloom all the time without ever having even the faintest whiff of any kind of solution. What a cushy job. I'm sure she's very bright, mind.

  • rate this
    0

    Comment number 142.

    Current *recovery* is smoke and mirrors housing boom fueled by artificially low interest rates. When rates inevitably rise it will be 2008 all over.

  • rate this
    0

    Comment number 141.

    139. Mr W
    The situation in Europe is one I cannot see being resolved soon , growth is absolutely essential but the EU and eurozone have failed miserably
    __________

    No it hasn't. That's like saying the US failed miserably when the Civil War started or when Wall Street crashed in 1929. It made them stronger, and where are they now, eh?

  • rate this
    +1

    Comment number 140.

    IMF aka intrinsically manipulative force would love to make billions of people work for peanuts.

  • rate this
    0

    Comment number 139.

    The situation in Europe is one I cannot see being resolved soon , growth is absolutely essential but the EU and eurozone have failed miserably and more than ever the Europe needs to go back to its roots as a ' common market ' . Its only by supporting trade , business , free movement of goods can Europe grow and the euro , laws and social idealism have only served to weaken the region .

  • rate this
    +1

    Comment number 138.

    She's just waiting for what all capitalists wait for when Capitalism hits a brick wall....A nice big War to remove the competition.

  • rate this
    -4

    Comment number 137.

    Lagarde is doing her job. The info she relays is useful. If you don't get it you shouldn't worry your pretty little head over it, just get your head down and work.

  • rate this
    0

    Comment number 136.

    People keep talking about eh 'Real World', as if global economics are something like home economics.
    It isn't, so she may just be right?

  • rate this
    -6

    Comment number 135.

    @ 133. Caerphillybigcheese : are you a communist?

  • rate this
    0

    Comment number 134.

    133: Just imagine what damage these people could do if they lived in the real world. Oh wait they do !
    Never mind Wage Deflationn and cuts all round !

  • rate this
    +2

    Comment number 133.

    The IMF is just the brand name for the nonjos for the boys/girls who belong to the self styled bureaucratic global elite. Take lagarde as an example. Has she ever done a proper job? An academic who's had a series of no jobs in the redtape world that is french national government. Her USB being that she's a bit more presentable than the damprags she mixes with at the eu and national govt treasuries

  • rate this
    +1

    Comment number 132.

    The International Monetary Fund (IMF) is an organization of 188 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

    Laughing out loud...

  • rate this
    +2

    Comment number 131.

    Wonderful quote I heard today; the powerful and the mad never accept any facts that do not agree with their own ideas.
    I suppose when you live in a world of statistics the real world becomes a misty blur.

  • rate this
    -1

    Comment number 130.

    123. Auf Wiedersehen Pet
    The EU supported protesters incensed over their president reneging on a deal with the EU that Russia didn't want. The protesters were then joined by other factions, including nationalists, who also had interest in unrest. What McCain did there I don't know, the interventionist US should have kept out.

    Simplistic b&w filtering of half facts make you look manipulative

  • rate this
    0

    Comment number 129.

    Afghanistan prevails on gross domestic product by exporting harvests of cash crops. The United States developed economic stagnation with prohibition of overseas technology trade during the Reagan Administration. The IMF should invest in productive nations as Poland, Romania, and Ukraine.

  • rate this
    +2

    Comment number 128.

    The fundamental concept of "must have more growth" is flawed. What is needed is a 'flat line' in economies. Why? Because 'more growth' somewhere means 'more shrinkage' somewhere else. And that includes the need for the world to slow down its obsession with procreation, else we will all be doomed. the world and its resources are finite. Why is that so difficult for some people to understand?

  • Comment number 127.

    This comment was removed because the moderators found it broke the house rules. Explain.

  • rate this
    +2

    Comment number 126.

    Executive pay and bonuses will continue to rise in excess of inflation, and that's all that matters to MP's.

 

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