IMF chief: Global economy better than a year ago

International Monetary Fund managing director Christine Lagarde says that while a substantial portion of the global economy appears better now than a year ago, some risks persist.

“Growth continues to strengthen and broaden among the emerging and developing economies,” and momentum is starting to pick up in the US, Lagarde said yesterday in remarks at the Boao Forum for Asia, in the southern Chinese province of Hainan.

Lagarde said she was giving a preview of the IMF’s World Economic Outlook report due next week, without providing numbers.

The IMF in January cut its 2013 global growth forecast to 3.5% and predicted a second year of contraction in the 17-country eurozone.

Risks for recovery include a “patchy recovery” with concerns that “naturally centre on Europe”, Lagarde said.

“While there has been progress on a number of fronts, policy solutions will take time to be completed and effective,” said Lagarde.

Fiscal risks are also weighing on growth, said Lagarde, citing spending cuts in the US and a “medium-term challenge” in Japan.

Monetary policies have limits in their effectiveness and may include unintended consequences, Lagarde said, while praising last week’s expanded stimulus from the Bank of Japan as “another welcome step in this direction”.

After decades of lending to developing economies in crisis, the IMF is now co-funding bailouts for Greece, Portugal, and Ireland to assist the eurozone in exiting its recent debt turmoil.

The global lender said last week that it will contribute about €1bn to a rescue programme for Cyprus that Lagarde called “challenging”.

Lagarde said in response to questions after the speech yesterday that Cyprus is “certainly no template of how things of that nature should be resolved”.

Cyprus was special in part because of the size of the banking industry compared with the country’s economy, she said.

The euro “has a future, and has a longstanding one”, Lagarde said.

“The collective political will to maintain, defend, protect and enhance the monetary and currency zone, has been largely underestimated.”

Collective debt in Europe is “clearly one of the next steps that have to be considered,” she said.

Asian economies have adjusted well to the aftermath of the global financial crisis with “resilient domestic demand” and capital inflows, Lagarde said.

At the same time, she warned, some economies have seen financial imbalances and rising asset prices, such as Hong Kong’s property market.

Many Asian countries will need to consider when and how to reduce policy support assuming the global recovery stays on track, Lagarde said.

The former French finance minister also urged leaders to pursue “green growth that respects environmental sustainability and supports economic sustainability”.

Environmental issues “are on the minds of China’s new leadership,” she said.

Lagarde said China’s government has made some progress in improving monitoring of local- government debt.

Other countries have seen financing by regional authorities “bump up significantly public debt,” said Lagarde.