Global economy faces strong headwind: IMF chief

Saturday, January 17, 2015
IMF chief Christine Lagarde addressing Council on Foreign Relations
[PHOTO: UNifeed] 
Washington: The year 2015 must be the "year of action" when policymakers redouble their efforts to tackle deep-seated economic weaknesses and show greater political leadership on infrastructure investment, trade agreements, and climate change, IMF Managing Director Christine Lagarde said.
"Despite the boost from oil prices, and despite stronger US growth, we see the global recovery continuing to face a very strong headwind," she told the Council on Foreign Relations, adding that good teamwork and strong leadership will be needed.

Lagarde said in 2015 the global economy will face three major policy challenges that will require decisions based on political courage, decisive action, and truly multilateral thinking: boosting growth and employment; achieving more inclusive, shared growth; and attaining more sustainable, balanced growth.

She said the drop in oil prices is a welcome shot in the arm that boosts consumers' purchasing power in oil-importing countries, and the U.S. economy should strengthen further this year, largely due to more robust household spending.
"The oil price and the US growth are not a cure for deep-seated weaknesses elsewhere. Too many countries are weighed down by at least two factors: legacies of the financial crisis, high debt and high unemployment. Too many countries keep cutting back on investment and consumption today because they are concerned about growth tomorrow," she said.

Lagarde said world growth is still too low, too brittle, and too lopsided, and stressed there are significant risks to a global economic recovery.

These risks require a powerful policy mix that can strengthen the recovery and provide better employment perspectives for citizens worldwide, Lagarde stated.

The immediate test for many policymakers is the impact of lower oil prices, Lagarde observed. Not so much for oil importers, for whom the windfall provides an opportunity to strengthen their macroeconomic frameworks and may help in alleviating inflation pressures. By contrast, oil exporters need to cushion the shock on their economies.

In the euro area cheaper oil is contributing to a further decline in inflation expectations, which increases the risk of deflation and bolsters the case for additional monetary stimulus. Most importantly, Lagarde added, the drop in oil prices also provides a golden opportunity to cut energy subsidies and use the savings for more targeted transfers to protect the poor.

"2015 must be the year of action. This means removing deep-seated distortions in labor and product markets; it means revamping creaking infrastructures and building new ones; it means trade liberalization and pressing ahead with reforms in education, health, and social safety nets. It also means unleashing the economic power of an underdeveloped segment of society when it comes to creation of value, and I'm here talking about women," Lagarde said.

Lagarde said it is important to unleash the economic power of millions of women who are currently locked out of the labor market.

"Gender policies: That is another major potential game changer. There are millions of women who are currently locked out of the labor market. Excluding these women is not just morally wrong, it's an economic mistake," Lagarde said.

Finally, Lagarde noted that she was heartened to see global leaders link arms in the march in Paris for the victims of last week's terror attacks.

"That collective approach and that team spirit was also demonstrated with the line of leaders and all those who participate in the same pursuit of the same objectives on this occasion," Lagarde said. -UNifeed
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