The Global Economy in 2014, by Christine Lagarde, Managing Director, International Monetary Fund
IMF News, January 15, 2014
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Bibliographic details
- Authors: Christine Lagarde
- Published: January 15, 2014
Context and framing
- Delivered at the National Press Club, Washington DC; AS PREPARED FOR DELIVERY.
- References to milestone anniversaries: the hundredth anniversary of the start of the First World War, the 70th anniversary of the Bretton Woods conference, the 25th anniversary of the fall of the Berlin Wall, and the 7th anniversary of the financial market jitters that led to the global crisis.
- Central motif: transition from “seven weak years” to a hoped-for “seven strong years” contingent on sustained, coordinated policy action.
Global outlook and risks
- Momentum strengthened in the latter half of 2013, and should strengthen further in 2014—largely due to improvements in the advanced economies.
- Global growth is still stuck in low gear and remains below its potential, which the IMF estimates is somewhere around 4 percent.
- Labor market implication: world could create more jobs before inflation concerns arise.
- Deflation risk: with inflation running below many central banks’ targets, rising risks of deflation that could be disastrous for the recovery.
- Role of emerging and developing countries: together they accounted for three-quarters of global growth over the past half decade, but a growing number of emerging markets are slowing as the cycle turns.
- Financial risks: potential turbulence and volatility of capital flows; reaction to the Fed’s tapering has been calm so far but rough waters remain possible.
- Distributional concern: in the United States, 95 percent of income gains since 2009 went to the top 1 percent.
- Employment shortfall: current global growth is not enough to create the jobs for the more than 200 million people around the world who need them.
- Overall assessment: direction is positive, but growth is too low, too fragile, and too uneven.
Policy agenda — overarching priorities
- Need to fortify the feeble global recovery and make it sustainable through sustained and substantial policy effort, coordination, and the right policy mix.
- Central banks in advanced economies should return to more conventional monetary policies only when robust growth is firmly rooted.
- Use the room created by unconventional monetary policies to implement reforms to jumpstart growth and jobs.
- Address common global problems: legacy of public and private debt, fiscal and current account imbalances, financial system repairs, rising inequality, environmental degradation, and long-term climate change risks.
Regional and country-level recommendations
- United States
- Growth picking up, driven by private demand and aided by the loosening of the fiscal corset in the recent budget deal.
- Critical to avoid premature withdrawal of monetary support and to return to an orderly budget process, including by promptly removing the debt ceiling threat.
- Euro Area
- Turning the corner from recession to recovery, but growth is unbalanced and unemployment remains worryingly high.
- Policy suggestions: monetary policy could do more (for example, targeted lending to reduce financial fragmentation); forthcoming asset quality review and stress tests must be evenhanded and credible.
- Need to accelerate reforms to boost labor market participation and enhance competitiveness.
- Japan
- Initial boost from Abenomics is weakening somewhat; temporary fiscal stimulus could offset negative effects of the necessary consumption tax increase.
- Challenge: agree on medium-term fiscal adjustments and social and economic reforms.
- Specific reforms: deregulate product and service markets and increase participation of women in the workplace to combat deflation.
- Emerging markets
- Navigate potential bumpiness and stay vigilant for financial excesses (asset bubbles, rising debt).
- Strengthen and implement financial regulation to manage credit cycles.
- Advance structural reforms to unlock growth potential (tackle infrastructure bottlenecks and regulatory obstacles).
- Low-income countries
- Generally positive news; these countries are a bright spot.
- Recommendations: lock in gains and build defenses against external shocks by raising more revenue and continuing selective spending on social programs and infrastructure.
- Dynamic regions observed firsthand
- Asia and sub-Saharan Africa saw growth of 6½ percent and 5 percent last year respectively.
- Noted the rise in economic power and growth of the middle class in these regions.
- Arab countries in transition
- Three years on from the Arab Spring; need firm international support to implement reforms that unleash private-sector dynamism and create jobs for youth.
IMF role and institutional actions
- The IMF’s comparative advantage: a forum for international cooperation and looking at the bigger picture of global interconnections.
- Since the onset of the crisis in 2008, the IMF reports making 154 new lending commitments and providing technical assistance to 90 percent of its members.
- Continued adaptation of the IMF to changing global dynamics and membership is emphasized; the institution seeks continued support from its membership.
Conclusions and closing
- Cooperation and global solidarity in the spirit of Bretton Woods are essential for progress in an interconnected world.
- Addressing distributional, environmental, fiscal, and financial challenges is necessary to ensure future prosperity and meet rising global aspirations for jobs, security, opportunity, and dignity.
- Closing reference and readiness to take questions; ends with the phrase “and that’s the way it is” (invoking Walter Cronkite).
Source: The Global Economy in 2014, by Christine Lagarde, Managing Director, International Monetary Fund (January 15, 2014).