‘new mediocre’
The global economy needs bold action, IMF’s Lagarde says.
• The global economy needs bold policies to avoid a “new mediocre” period of sluggish growth as the world struggles with a disappointing recovery six years after the financial crisis, the head of the International Monetary Fund said.
“We see continued weakness in the global economy,” IMF managing director Christine Lagarde said in a speech Thursday at Georgetown University in Washington. “Countries are still dealing with the legacies of the crisis, including high debt burdens and unemployment.”
The IMF is releasing new global growth predictions next week, and Ms. Lagarde indicated that an acceleration next year will be less than previously forecast. She cited “some serious clouds on the horizon,” including elevated joblessness and low inflation in the euro area, financial excesses building in advanced economies, and market and liquidity risks that are migrating to less-regulated areas.
“The global economy is at an inflection point: it can muddle along with sub-par growth — a ‘ new mediocre,’” she said. “Or it can aim for a better path where bold policies would accelerate growth, increase employment, and achieve a ‘new momentum.’”
In an interview with Bloomberg TV following her speech, Ms. Lagarde said the IMF is monitoring the disparity between sluggish global growth and buoyant markets.
Ms. Lagarde drew a contrast between high asset valuations and low market volatility on one hand, and the slow pace of economic recovery on the other. There is “a discrepancy between the two which is quite worrying,” she said.
In her speech, five days before the IMF releases its latest World Economic Outlook, Ms. Lagarde said the global economy is weaker than the IMF projected six months ago. Advanced-country growth is led by the U.S. and U.K., while Japan’s rebound is “modest,” and the euro area is the weakest, Ms. Lagarde said in her speech. That is resulting in a “read justment ” of currency values , she said. “We’re seeing a readjustment that is also based on the readjustment of the real economies,” Ms. Lagarde said. “If you look at what is the brightest spot, it’s the U.S., so the dollar is appreciating as a result. If you look at the weakest in the advanced economies at the moment, it’s the euro zone. The euro is depreciating relative to the others.”
“Our main job now is to help the global economy shift gears and overcome what has been so far a disappointing recovery: one that is brittle, uneven, and beset by risks,” Ms. Lagarde said. European Central Bank president Mario Draghi announced Thursday the bank will buy assets for at least two years to boost inflation and economic growth in the euro area. The Frankfurt-based central bank left interest rates unchanged at record lows.
Euro-area polic y-makers are under pressure from foreign counterparts to rev up their economy and Mr. Draghi may face fresh calls to do so when he heads to Washington next week for the IMF’s annual meeting. Mr. Draghi rebutted criticism Thursday t hat t he ECB hasn’t done enough. “I find this description of the ECB as the guilty actor here needs to be corrected,” he said.