Risks to global economy remain, says IMF's Lagarde
IMF Managing Director Christine Lagarde on Saturday said the global economy still faces risks and concerted, strong actions are required by all nations to meet the challenge.
"In sum, risks to the global economy are rising, but there remains a path to recovery. The policy options are narrower than before but there is a way through," she said.
"There are lingering uncertainties, but resolute action will help to dispel doubts. I am confident that with the right actions, strong, sustainable, and balanced growth can and will be restored," Lagarde said in a speech.
She said that like in the first phase of the crisis, the point has been reached where actions by all countries will add up to much more than actions by a few.
"We must act now, act boldly, and act together," Lagarde said, adding that the global economy continues to grow, yet not enough.
She said the actual progress on rebalancing has been timid at best, while the downside risks to the global economy are increasing. Lagarde added: "Those risks have been aggravated further by a deterioration in confidence and a growing sense that policymakers do not have the conviction, or simply are not willing, to take the decisions that are needed."
She said that while fiscal consolidation remains an imperative, macroeconomic policies must support growth. "Fiscal policy must navigate between the twin perils of losing credibility and undercutting recovery. The precise path is different for each country," Lagarde said.
Monetary policy, she said, should also remain highly accommodative, as the risk of recession outweighs the risk of inflation.
"This is particularly true as (i) in most advanced economies inflation expectations are well anchored; and (ii) pressures from energy and food prices are abating. So, policymakers should stand ready, as needed, to dive back into unconventional waters," Lagarde said.
Micro-level policy actions to relieve balance sheet pressures—felt by households, banks, and governments—are equally important, she said and added: "We must get to the root of the problem. Without this, we will endure a painful and drawn-out adjustment process."
Lagarde cautioned that although structural reforms will surely help boost productivity and growth over time, but care should be taken not to weaken demand in the short term.
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