Despite the boost from cheaper oil and stronger U.S. growth, global recovery in 2015 will face a “very strong headwind,” warned Christine Lagarde, managing director of the International Monetary Fund (IMF).
Lagarde in a recent speech said that despite lower oil prices and a stronger recovery in the United States, prospects for the global economy this year remain challenging “since there are still powerful factors that weigh on the downside.”
She explained: “The oil price and U.S. growth are not a cure for deep-seated weaknesses elsewhere. Too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment. Too many companies and households keep cutting back on investment and consumption today because they are concerned about low growth in the future.”
In fact, she pointed out, “the United States is the only major economy that is likely to buck the trend this year, while others are being held back—mainly by lackluster investment. A promising recovery continues in the UK, but growth remains very low in the Euro Area and Japan. And emerging economies, led by China, are slowing down, relatively speaking.”
Overall, she said that global growth is still “too low, too brittle, and too lopsided,” with significant risks to the recovery.
These include the asynchronous normalization of monetary policies in advanced economies that could affect emerging markets and global financial stability; the possibility of emerging and developing economies facing a triple hit of a strengthening U.S. dollar, higher global interest rates, and more volatile capital flows; the risk that the Euro Area and Japan could remain stuck in low growth and low inflation for a prolonged period; and increased geopolitical risks.
Lagarde said there is a need for a powerful policy mix that can strengthen the recovery and provide better employment perspectives for citizens worldwide.
She called for accommodative monetary policies that are growth- and job-friendly, more structural reforms that promote trade liberalization, increased infrastructure investment, and enhanced global cooperation for a “new multilateralism.”
The IMF’s latest update of its “World Economic Outlook” will be formally presented on January 20.
Photo: BluesyPete
