IMF chief says economic growth to remain uneven

Christine Lagarde says risks to global financial stability are rising

Christine Lagarde, managing director of the International Monetary Fund (IMF). Photograph: Bloomberg

Christine Lagarde, managing director of the International Monetary Fund (IMF). Photograph: Bloomberg

 

Macroeconomic risks have declined over the past year but growth in the global economy remains uneven and moderate, the managing director of the International Monetary Fund (IMF) Christine Lagarde said on Thursday.

She said that while advanced economies were doing slightly better than they were a year ago, the forecasts for most emerging and developing economies were not as good.

“The global economy has benefited from a shot in the arm provided by reduced oil prices and by the strong performance of the world’s largest economy, the United States. Overall, macroeconomic risks have decreased. So the global recovery continues, but it is moderate and uneven. In too many parts of the world it is not strong enough. In too many parts of the world, people do not feel it enough. In addition, financial and geopolitical risks have increased,” she said.

Ms Lagarde said continued monetary accommodation was needed, particularly in the euro zone and Japan. She added that fiscal policy also needed to be calibrated to the strength of the recovery, without losing sight of debt sustainability over the medium term.

The head of the IMF warned that while the situation had improved, risks to global financial stability were rising.

“Financial risks may have declined in some areas, but they have also been migrating to others-for example, from banks to non-banks, and from advanced economies toward emerging markets,” she said.

“These risks may be manageable individually, but we also have to contend with a structural decline in market liquidity. This is due primarily to recent changes in the structure of the asset management industry in advanced economies, which have created a mismatch in the maturity of assets and liabilities. This means that liquidity can evaporate quickly if everyone rushes for the exit at the same time- which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates.”

Ms Lagarde called for emerging markets and developing countries to be given a greater voice in global economic institutions to reflect the new reality of their contributions and responsibilities regarding the global economy.

She also called for enhanced cooperation with regional facilities and institutions such as the new Asian Infrastructure Investment Bank, and urged a firming up of the IMF’s resources.