DUSHANBE, October 3, 2014, Asia-Plus – Ms. Christine Lagarde, Managing Director, International Monetary Fund (IMF) say the IMF’s main job now is to help the global economy shift gears and overcome a brittle and uneven recovery that is beset by risks.
She told an audience at the Georgetown University School of Foreign Service October 2 that the world economy is at an inflection point.
The world needs to aim higher and try harder, Lagarde stated. This means “bolder policies to inject a ‘new momentum’ that can overcome this ‘new mediocre’ that clouds the future.”
Six years after the financial crisis began, there is continued weakness in the global economy, and only a modest pickup is foreseen for 2015, Lagarde observed.
Among advanced economies, the rebound is expected to be strongest in the United States; modest in Japan; and weakest in the euro area.
Emerging market and developing economies have been doing much of the heavy lifting during this crisis—accounting for more than 80 percent of world growth since 2008.
Led by Asia, and China in particular, emerging market and developing economies are expected to continue to help drive global activity.
For them too, however, it is likely to be at a slower pace than before. For the low-income developing countries, economic prospects are rising but, as debt builds up in some countries, they need to be watching as well.
In the Middle East, the outlook is clouded by difficult economic transitions and by intense social and political strife. The world economy risks getting stuck with a mediocre level of growth—low growth for a long time, Lagarde said.
Lagarde also pointed to concern that financial sector excesses may be building up, especially in advanced economies. Asset valuations are at an all time high; spreads and volatility are at an all time low.
Also worrying is the migration of new market and liquidity risks to the “shadows” of the financial world—part of the less-regulated, nonbank sector, which is growing rapidly in some countries.
In addition developments in Ukraine, the Middle East, and in countries affected by the Ebola outbreak represent geopolitical risk.
Faced with these events, the world economy can muddle along with sub-par, mediocre growth, Lagarde said. “Or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a ‘new momentum.’ ”
