The world’s policymakers must take economic reforms more seriously, or they could see their economies stuck in a muddle of mediocre growth with high debt and unemployment, the head of the International Monetary Fund said yesterday.
IMF managing director Christine Lagarde said her advice had not changed much since six months ago — the last time the world’s finance ministers and central bankers gathered in Washington for the IMF and World Bank meetings — but more threats loomed on the horizon.
“The latest snapshot of the global economy looks uneasily familiar: A brittle, uneven recovery, with slower-than-expected growth and increasing downside risks,” Ms Lagarde said in her Global Policy Agenda that lays out priorities for the IMF and its 188 member countries.
In its global economic outlook earlier this week, the IMF cut growth projections for the third time this year, to 3.3% in 2014 and 3.8% in 2015, warning of weaker performance in core eurozone countries, Japan and big emerging markets like Brazil.
“A much higher premium needs to be put across the membership on policies aimed at decisively raising today’s actual and tomorrow’s potential growth,” Ms Lagarde said.
The IMF has warned the eurozone in particular risks sinking into a morass of low growth as it grapples with high unemployment and low inflation.
Ms Lagarde said she welcomed plans by European Central Bank president Mario Draghi to buy bundled debt in order to boost Europe’s flagging economy. “But if the inflation outlook does not improve and expectations continue to drift downward, the ECB should be willing to do more, including purchases of sovereign assets,” she said.
Ms Lagarde has been beating the drum on deeper economic reforms for at least the past two years although efforts to secure tangible action in the eurozone have been stymied by Germany’s reluctance to embrace stimulus.
Ms Lagarde said Germany and the US in particular have space to invest more in growth-enhancing infrastructure projects.
She also said the IMF may soon start figuring out what to do about long-delayed reforms to its governance structure meant to give emerging markets a greater voice.
The US Congress has so far failed to pass the measures, which were agreed in 2010 but cannot proceed without the support of the world’s biggest economy. Prospects for ratification seem unlikely in the short legislative session before the end of the year, after the US holds mid-term elections in November.
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