IMF Survey : Lagarde: Prevent “New Mediocre” From Becoming “New Reality”

IMF News, April 9, 2015

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Speech at the Atlantic Council on April 9 called for policymakers to "pick up the pace of the recovery and create more growth now and in the future."
"Six months ago, I warned about the risk of a ‘new mediocre’—low growth for a long time. Today, we must prevent that new mediocre from becoming the ‘new reality’."
Global recovery described as continuing, but "moderate and uneven."
Global growth was "3.4 percent last year" and is "roughly the average for the last three decades," yet "just not good enough."
IMF Managing Director emphasized combining policies to "boost today’s growth with those fortifying tomorrow’s prospects."

Macroeconomic risks:
- Risk of "low growth-low inflation, and high debt-high unemployment" persists in a number of advanced economies.
- Recommended policy responses: use demand policies to lift today’s growth; continue monetary accommodation—"especially in the euro area and Japan"; calibrate fiscal policy to the strength of the recovery.
Financial risks:
- Risks to global financial stability are rising and migrating (for example, "from banks to nonbanks and from advanced economies more toward emerging markets").
- Global-level measures: ensure market liquidity during times of stress; improve macro- and micro-prudential policies for nonbanks; follow through on the regulatory reform agenda.
- Country-level measures: limit excessive risk-taking and manage existing vulnerabilities.
Regional and group observations:
- Advanced economies are doing a bit better than last year; prospects in the euro area are improving.
- Forecasts for most emerging and developing economies are a bit worse than last year, mainly owing to lower commodity prices, but "there is tremendous diversity within this group."

Potential growth is being pared down in both advanced and emerging economies, largely reflecting lasting scars from the financial crisis.
Structural reforms should go hand-in-hand with macroeconomic and financial policies to raise confidence and generate investment.
Infrastructure 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."
IMF research priorities and payoffs highlighted:
- First, reversing the decline in productivity growth in advanced economies requires lowering barriers to entry in product and services markets.
- Second, removing barriers to labor force participation is key to tackling inequality and ensuring broad-based growth.
- Third, there are potentially huge global gains from further trade reform and integration.

Need for an open and resilient multilateral system to leverage national benefits and avoid negative spillovers from inconsistent policies.
Emerging and developing countries should have greater weight and voice in global economic institutions to reflect their contributions and responsibilities.
Call for the U.S. Congress to ratify the IMF’s 2010 quota and governance reforms so these measures can become effective.
Proposal to increase the role of the IMF’s Special Drawing Rights as a global reserve asset and to facilitate integration of dynamic emerging markets into the global economy.
Strengthening the international development system:
- Highlighted three critical issues: financing for development, the new "sustainable development goals" or SDGs, and climate change.
- IMF contributions: financing, policy advice and analysis, capacity building, and technical assistance.
- "Here, 2015 presents a special moment: an opportunity to make a tangible difference in the lives of a large number of people in the world—especially the poorest people."

Source: IMF Survey — speech by IMF Managing Director Christine Lagarde at the Atlantic Council, April 9, 2015.