Economic Recovery

International Monetary Fund Managing Director Christine Lagarde speaks about the global economic outlook and policy challenges for 2014.

Ms Lagarde, speaking at the National Press Club in Washington, urged policy makers in advanced economies to fight threats of deflation that would threaten a global recovery she called “feeble.” (Source: Bloomberg).

Watch the full video hear: Lagarde Warns Officials to Fight Deflation in 2014

IMF will announce its 2014 outlook on January 21^st.

• Growth is directionally positive but at low gears.
• Rising risks of deflation.
• If inflation is the genie then certainly deflation the ogre that must be fought decisively.
• During the crisis, emerging and low income countries contributed with 3/4^th of global growth.
• A growing number of emerging markets are slowing down.
• Risks from volatility in financial services – There could still be rough waters.
• The benefit of growth are being enjoyed by far few people – Too much of the growth is enjoyed 95% of income growth increase went to the top 1%. This is not a recipe for stability and not a recipe for sustainability.

 “The global growth is still too low, too fragile and too uneven. Not enough to create the 200 million jobs needed.”

Policy Recommendations:

Policy makers need to stay focused on the policies that are needed for sustainable and inclusive growth as well as rewarding jobs.

We so far have avoided the worst case scenario and all policy makers have made part of the necessary effort.

However, as Edward R. Murrow said, “Difficulty is the excuse that history never accepts.”

“The top priority is to fortify the feeble economic recovery and make it sustainable.”

Advanced economies:

Central banks should not undo the uncongenial policies they deployed until the recovery is robust.

All countries need to take the opportunities to continue delivering the right reforms reform.

US:

• Growth picking up driven by the private sector.
• Loosening of the fiscal corset as a result of the recent budget deal.
• Need to return to a normal process including removing the threat of the debt ceiling.

Europe:

• Growth is uneven.
• Monetary policy can help. ECB can be more in a targeted way. To facilitate borrowing especially to reduce the large fragmentation.
• Enhance competitiveness.

Japan:

• Initial boost by Abbey was good but becoming weak.
• The challenge is to agree on medium term fiscal adjustments and to the economic and social reform needed. Deregulating the product and service market. And making sure that women can access the job market.

Emerging Markets:

The challenge is to navigate any bumpiness and stay robust.

• Strengthen financial regulation.
• Manage well risk of bubbles.
• Continue with structural reforms.

Low Income Countries:

• Rebuild buffers lost in the crisis.
• Raise revenues.
• Keep on spending selectively and effectively on important social projects.

Issues that cut across all countries:

These have no borders that require Common resolve and common solutions to common problems.

1. Legacy of public and private debt
2. Fiscal and current accounts consolidation
3. Reforms to financial system
4. Rising inequality. Rising income goes to 1% of the population

“Only by addressing these issues we can ensure future prosperity and meet the aspiration of young people and global populations for jobs, for equality, and for dignity.”

To continue IMF’s support to global economic stability we need cooperation and global solidarity.