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

Related Stories

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.

 

More on This Story

Related Stories

The BBC is not responsible for the content of external Internet sites

Comments

This entry is now closed for comments

Jump to comments pagination
 
  • 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.

 

Page 1 of 8

 

More Business stories

RSS

Business Live

  1.  
    11:00: Russia rate cut

    There's been quite a sharp fall in the rouble against the dollar and the pound following Russia's interest rate cut. A dollar is buying around 70.84 roubles, a 2.78% fall for the Russian currency. One pound will now get you around 106.6 roubles, which is about a 2.72% fall for the rouble.

     
  2.  
    Russia rate cut Via Twitter Andrew Walker BBC World Service Economics correspondent

    tweets: Russian central bank cuts interest rate - 15% from 17% due to "stabilisation of inflation and depreciation expectations"

     
  3.  
    10:41: German beer
    Oktoberfest

    Among general eurozone gloom, a bright spot for German breweries, who saw their first increase in sales volume in 2014 after seven years of declines. The Federal Statistical Office said overall sales of German beer in 2014 were 9.56 billion litres (about 16.8 billion UK pints), an increase of 1% over 2013.

     
  4.  
    Fridgeonomics Via Blog Linda Yueh Chief business correspondent

    After a five-year effort, Unilever tells me that it has achieved zero waste in all of its 240 factories in 67 countries worldwide. It says that it generates efficiency savings of €200m a year by eliminating disposal costs. Read more of Linda's blog on the website.

     
  5.  
    10:14: Housing minister Radio 5 live

    Housing Minister Brandon Lewis was on 5 live talking about house building. "I'm not a fan of targets," he says. Less regulation for small building projects is helping building, he adds. If we are short of housing, why the rise of detached houses? "We've had a period of [building] lots of apartments of flats... we need homes as well."

     
  6.  
    10:00: Rental prices
    ONS

    The graph above, courtesy of the ONS, shows the trend of percentage increases in rental prices. After rises nearing 3% in 2012, the dip to 1.5% may well have ended.

     
  7.  
    09:43: Rental prices
    rents

    Private rental prices paid by tenants in Great Britain rose by 1.7% in 2014, according to the Office for National Statistics. A 2% rise in Scotland led the charge, while English rents grew 1.8%, and 0.2% increases were logged in Wales. As can be seen, London rent rises have outgunned the rest of the country.

     
  8.  
    09:32: Bank of England lending data

    Mortgage approvals rose in December for the first time since June, the Bank of England said. This could mean that a steady reduction in home loans could be ending. There were 60,275 mortgage approvals last month, up from 58,956 in November.

     
  9.  
    Via Twitter Richard Westcott BBC transport correspondent

    tweets: BBC News - Crossrail makes tunnel breakthrough under Liverpool Street Station

     
  10.  
    09:12: Plane order
    ana

    All Nippon Airways has placed an order with a list price of $2.2bn (£1.46bn) for 15 planes from Boeing and Airbus. The Japanese flag carrier is looking to expand routes at Tokyo's central Haneda airport. The airline said it would acquire eight planes from US-based Boeing and seven from fellow duopolist Airbus.

     
  11.  
    08:54: Eurozone crisis
    Alexis Tsipras

    Watch out for Greek fire. Or, continuing the Greek theme, maybe we'll see the golden mean. The prime minister who heads the nation's new anti-austerity government, Alexis Tsipras, has it in his diary to meet Jeroen Dijsselbloem, the current head of the eurozone group of finance ministers today to discuss the conditions of Greece's massive bailout.

     
  12.  
    BT results 08:37: Via Twitter Rory Cellan-Jones Technology correspondent

    tweets: BT says ultrafast coming within a decade - but will it look that fast in 2025?

     
  13.  
    08:29: Honda
    honda

    Honda cut its annual operating profit forecast by 6.5%. It has set aside more cash to cover its recall of cars to replace potentially faulty air bags. It now expects an operating profit of 720 billion yen (£4.1bn) for the year to March 31. It previously forecast 770 billion yen.

     
  14.  
    08:16: Paper review
    papers

    The Guardian splashes on a report from the Institute for Fiscal Studies which claims young workers have been hit hardest by a squeeze in standards of living. The FT digests Shell and US rival ConocoPhillips's investment cancellations. The Wall St Journal says bets against currency pegs, like Denmark's krone with the euro, are on the rise following Switzerland abandoning theirs. The Telegraph reports on a likely windfall for gas companies as wholesale costs drop.

     
  15.  
    Google results Via Twitter Stephen Shankland Senior writer at CNET News

    tweets: Google's capital expenditures jumped $1.13 billion sequentially to $3.55 billion in 4Q2014. Data centers ain't cheap.

     
  16.  
    07:50: Market update

    Japan's Nikkei index added about 0.4%, clawing back some of the 1.1% lost yesterday, while the Hong Kong Hang Seng index dropped 0.1%, to 24,570.01. Japanese factory output rose 1% from the previous month, below forecasts, while household spending fell more than expected, down 3.4% on a year ago.

     
  17.  
    07:33: PPI investigation

    The Financial Conduct Authority, the City watchdog, is planning to "gather evidence on current trends in complaints on payment protection insurance," it says. It could then decide to do an advertising campaign, a time limit on complaints or keep things as they are.

     
  18.  
    07:25: BT results

    BT have updated everyone on their pension fund situation and how they will deal with a £7bn deficit. BT will pay £1.5bn into the fund by the end of April 2015. This will be followed by £250m in each of the years to March 2016 and March 2017. Low interest rates have hit the fund.

     
  19.  
    07:16: Qatar Airways
    Qatar Airways plane

    Qatar Airways has acquired stake of just less than 10% in BA and Iberia-owner IAG. There's a cap on non-EU ownership of European airlines, but Qatar Airways might up its stake in future, it says.

     
  20.  
    07:05: BT results

    BT says third-quarter earnings before tax and interests costs rose 2% to £1.57bn. Gavin Patterson, chief executive says: "All the major communications providers are responding to the strong market demand for fibre broadband, helping to drive take-up in what is already a very competitive market."

     
  21.  
    06:57: US growth data BBC Radio 4

    US growth figures will be reported later on. What's the likely result, Today asks Ewen Cameron Watt of Blackrock? "The rate of growth is slowing a little bit but not enough to raise serious concerns," he says. Expect a "stable but robust rate of growth."

     
  22.  
    06:45: Greece Radio 5 live
    Greece

    Guntram Wolff is the director of European think tank Bruegel, and he's on 5 live, talking about Greece. "It was a mistake that Greece joined the euro, but it would now be a mistake for it to leave," he says. "We will have to come to a deal that will have a lower burden on Greece. I essentially think you will keep the nominal amount [owed to bond investors] but you will increase the maturity.. from 30 to 40 or 50 years."

     
  23.  
    06:30: Amazon results Radio 5 live

    More from Ewen Cameron Watt of investment manager Blackrock on 5 live. He is giving his views on US results overnight. "Amazon and Google both essentially reported that underlying demand over Christmas was pretty decent," he says. After tax, margins at Amazon are below 1%, he says.

     
  24.  
    06:20: Trademark news Radio 5 live
    swift

    The phrases "this sick beat" and "nice to meet you, where you been" have been trademarked by singer Taylor Swift, 5 live reports. Laura Harper of law firm Shoosmiths says she is trying to stop other people making money by putting the phrases on a t-shirt or other merchandise. She will have to prove the phrases are "synonymous" with her, she says.

     
  25.  
    06:09: Shell results Radio 5 live
    shell

    Ewen Cameron Watt of Blackrock is the markets guest on 5 live, talking about yesterday's results from Shell. "These are very historic results because they reflect an average price of $75" per barrel of oil, he says. Bearing in mind oil is below $50 today, "the pain is yet to come," he adds. The firm has cut $15bn of investments. The longer the price remains at this level, the more likely more investment cuts will come, he says.

     
  26.  
    06:01: House building Radio 5 live

    Figures from the National House Building Council show there was a 9% rise in homes built last year to 145,174, but the rise missed the government's 200,000 home target. Peter Vella of Countryside Properties is on 5 live. NHBC's figures don't take into account all homes started or built, so the industry could be closer to the target than thought.

     
  27.  
    06:00: Howard Mustoe Business reporter

    Good morning all. Overnight, online retail giant Amazon has reported weaker profits for the busy Christmas period. Stay tuned for the best business and economics news and get in touch via email bizlivepage@bbc.co.uk or on twitter @BBCBusiness

     

Features

From BBC Capital

Programmes

  • A car being driven by Cruise Automation technologyClick Watch

    The tech which could allow any car with an automatic gearbox to become self-driving

Copyright © 2015 BBC. The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.