Activity in global economy less than expected

Global economic activity should strengthen in the second half of this year and accelerate in 2015, although momentum could be weaker than expected, IMF chief Christine Lagarde said yesterday, hinting at a slight cut in the Fund’s growth forecasts.

Ms Lagarde said central banks’ accommodative policies could have only limited impact on demand and that countries should also act to boost growth by investing in infrastructure, education and health, provided their debt stays sustainable.

The IMF’s update of its global economic outlook, expected later this month, will be “very slightly different” from the forecasts published in April, she said. Then, the IMF had forecast that global output would grow by 3.6% in 2014 and 3.9% in 2015.

“Global activity is picking up, but the momentum could be less strong than we had expected because potential growth is weaker and investment ... remains subdued.”

She made a plea for more public investment, saying the “investment deficit” in both the public and private sectors was dragging down growth in most countries.

“Despite the many responses to the crisis ... recovery is modest, laborious, fragile, and measures to boost demand, despite the goodwill of central banks, will find their limits,” she told a conference in southern France.

“We must, therefore, take steps to boost efforts to strengthen growth,” she added.

Ms Lagarde said — several times in her speech — that although now could be the time for some countries to boost public investment, not all of them could afford to do so.

After a first quarter that was “much more disappointing than expected“, there was now a “sensible rebound” in the US economy, she said. Growth should accelerate as long as the Federal Reserve’s withdrawal from easy monetary policy is orderly and there is a precise medium-term budget framework.

The eurozone is slowly coming out of recession and it is crucial that countries continue to carry out reforms, including completing the banking union, Ms Lagarde added.


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