The global economy has picked up but bold action is needed to surmount serious dangers and deliver the benefits more evenly, International Monetary Fund (IMF) managing director Christine Lagarde says.
Lagarde said the Ukraine crisis, slower growth in emerging economies, the threat of deflation in the eurozone, financial sector vulnerabilities in the two leading economies and market turbulence generally are serious hurdles to extending the global recovery.
Spelling out the policy challenges for the world’s economic policy-makers at the start of the annual IMF and World Bank spring meetings, Lagarde said determined efforts were needed to strengthen growth, after a “subdued” rebound from the economic crisis.
“The global economy is turning the corner, but the recovery is still too weak and too slow …. Bold actions are needed,” she said.
“For some, despite the fact that growth is strengthening, they’re not feeling it. We still have 200 million people unemployed.”
The IMF laid out a detailed policy agenda for its meetings with finance ministers and central bank chiefs from around the world, which highlights the need for vigilance in countries at all points on the economic cycle.
Advanced economies need to be sure not to mishandle the shift from easy-money regimes set during the financial crisis, and the IMF warns that tightening too fast could derail their recovery and hurt growth in other countries.
China needs to deftly handle its non-banking credit bubble, and the United States needs to address new risks in corporate debt, margin lending and leveraged finance, the IMF warns.
Japan needs to push through on the “third arrow” of its turnaround — structural reforms — while emerging markets must themselves redo policies to adjust to a world of tighter capital.
Lagarde reiterated the IMF’s advice to the European Central Bank (ECB), urging it to quickly embark on operations to fend off deflation which could reverse Europe’s recovery.
While saying the fund respects the ECB’s judgment, she urged it to act “sooner rather than later”.
Both the IMF and the World Bank stressed that the Ukraine crisis could also damage the world’s economic prospects, as both bodies marshall billions of dollars to prop up Kiev’s finances after the ouster of pro-Moscow president Viktor Yanukovich in February.
In the wake of its annexation of Ukraine’s Crimea region in March, Russia on Thursday stepped up the tension with President Vladimir Putin threatening to cut off its supply of natural gas to Ukraine.
Finance ministers of the G7 industrial powers will hold discussions mainly on Ukraine on Thursday on the sidelines of the IMF and World Bank meetings, according to diplomats.
Their view is likely to be put to meetings late Thursday and Friday in Washington of the G20 economic chiefs.
World Bank President Jim Yong Kim warned that the crisis will have far-reaching effects on Russia, which could be forced into recession.
“This is a very serious issue for Russia — a very serious issue for its growth prospects,” Kim told reporters.
“So, we simply urge all of the parties to continue with negotiations and find a peaceful means of moving forward.”
The IMF has forecast global growth at 3.6 per cent this year, and 3.9 per cent next year. But Lagarde noted that the G20 itself in February observed that with the right policies and the right co-operation between countries, growth could be higher by two percentage points over the next half-decade.
“That is the kind of growth trajectory that would help create jobs,” she said.
In response, Nicolas Mombrial, of the anti-poverty group Oxfam, said the IMF needs a plan that will address another part of the picture, inequality.
“There’s no trade-off between growth and inequality. There will be no inclusive growth if economic inequality remains out of control.”
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