The global economy faces the possibility of decelerated growth, and emerging and developing economies are particularly vulnerable to the macroeconomic challenges coming up, according to a top official of the International Monetary Fund (IMF).
IMF Managing Director Christine Lagarde, speaking ahead of the IMF-World Bank Spring Meetings that take place April 17-19 in Washington, said the global recovery continues, but at a moderate and uneven pace.
“Six months ago, I warned about the risk of a ‘new mediocre’—low growth for a long time,” Lagarde pointed out. “Today, we must prevent that new mediocre from becoming the ‘new reality’.”
She noted that global growth last year of 3.4%—roughly the average for the last three decades—was not bad, as the world benefited from lower oil prices and the strong performance of the United States.
This year, the outlook remains moderate, which is “just not good enough” to improve the lives of a large number of people in the world, especially the poorest, Lagarde noted.
For both advanced and emerging economies, potential growth is being pared down, largely reflecting lasting scars from the financial crisis.
But while advanced economies are seen to do slightly better in 2015 with prospects in the euro area improving, most emerging and developing economies are forecast to have it a bit worse than last year, mainly owing to lower commodity prices. Lagarde pointed out, though, that “there is tremendous diversity within this group.”
To prevent a period of protracted low growth from taking hold, policymakers should work together to pick up the pace of the recovery and create more growth, she continued.
“The challenge for policymakers around the world is to combine the policies needed to boost today’s growth with those fortifying tomorrow’s prospects,” she noted.
Lagarde identified the significant challenges looming, including the macroeconomic risks presented by persistent low growth-low inflation and high debt-high unemployment in a number of advanced economies.
Financial risks include rising global financial stability that is now migrating, such as from banks to nonbanks and from advanced economies toward emerging markets.
To combat these risks, Lagarde said, means that “structural reforms need to go hand-in-hand with macroeconomic and financial policies to raise confidence and generate investment.”
“Our own research shows that boosting efficient infrastructure investment can be a powerful impetus to growth both in the short run and in the long run,” Lagarde noted.
Reforms that will boost productivity growth, labor force participation, and trade are also needed. She said success in these areas lies in a willingness to do the following:
- Reverse the decline in productivity growth in advanced economies by lowering barriers to entry in product and services markets.
- Remove barriers to labor force participation to tackle inequality and ensure broad-based growth.
- Realize the potentially huge global gains from implementing further trade reform and integration.
Lagarde also stressed the need for an open and resilient multilateral system and for international cooperation to ensure future growth and development.
“Emerging and developing countries must have greater weight and voice in global economic institutions—to reflect the new reality of their contributions and responsibilities regarding the global economy.”
Photo: Alphab.fr
