"A New Global Economy for a New Generation" — Christine Lagarde

IMF News, January 23, 2013

Source details

Canonical URL: "A New Global Economy for a New Generation" — Christine Lagarde

Context: Davos, Switzerland, January 23, 2013; speech delivered "as prepared for delivery."
Short-term assessment:
- IMF World Economic Outlook projection: global growth of only 3½ percent this year.
- Recovery described as "still weak" with "uncertainty ... still high."
- 2013 characterized as "a make-or-break year."
Short-term policy priorities:
- Euro Area: make firewalls operational; push ahead with banking union; continue difficult but necessary fiscal adjustment at the country level; support demand with further monetary easing.
- United States: "pulling together in the national interest" and avoid policy mistakes such as failing to agree on increasing the debt ceiling; for the United States and Japan, reach agreement on medium-term debt reduction.
- Emerging and developing economies: rebuild policy space used up in alleviating the crisis; recognize heterogeneous vulnerabilities across countries.

Four "pivot points" shaping the future:
- Growing demand for individual empowerment, including for women, and a growing sense of a single global community.
- Reallocation of political and economic power—example: by 2025, two-thirds of the world’s population will live in Asia.
- Seismic demographic shifts: "youth bulge" vs. "graying" populations — 60 percent of the population in the Middle East and North Africa is under 30; it is 70 percent for sub-Saharan Africa.
- Increasing vulnerability from resource scarcity and climate change (described as "the real wild card in the pack").
Characteristics of the new generation:
- "Weaned on immediacy, democracy, and global reach of social media."
- Social media scale cited: Facebook and Twitter have about one billion and 500 million users respectively.
Proposed foundational values to embrace: greater openness; stronger inclusion; better accountability.

Rationale: globalization makes cooperation imperative; national silos are ill-suited to a flat, interconnected world.
Risks of retreat: competitive devaluations, barriers to trade, protection of domestic financial institutions at others' expense.
Benefits of openness, with examples:
- Trade and financial integration lift domestic demand and help small firms access credit; provide insurance against adverse developments; reduce inequality via financial inclusion.
- Asia: trade within Asia "tripled over the past decade"; regional trade among emerging Asian nations grew even faster, but the region "has lagged behind in financial integration" and "is not investing enough of its own savings in its own future."
- Middle East and Africa: can gain from knocking down barriers to trade and welcoming investment to boost productivity, diversity, and resilience.
- Maghreb example: together the region forms "a vibrant market of 90 million people."
- Europe: described as undergoing "historic process of integration" and needing deeper banking and fiscal union, while remaining an optimistic prospect if it stays on reform and integration.

Inclusion as a core aspiration: participatory world demanding opportunity, tolerance, respect, and fairness.
Growth and inclusion:
- Inclusive growth must be job-rich; "we need growth for jobs and jobs for growth."
- Labor market statistics: 202 million people are looking for work; two in five of the jobless are under 24.
Policies to advance inclusion:
- Universal access to decent education as "non-negotiable."
- Robust social safety nets, extending the reach of credit, and—in some cases—minimum wages.
Gender inclusion:
- Women control 70 percent of global consumer spending.
- Study cited: raising women’s employment rates to the level of men would increase GDP by:
- 5 percent in the United States
- 9 percent in Japan
- 10 percent in South Africa
- 27 percent in India
- 34 percent in Egypt
- Recommendation: remove obstacles to female participation, including subconscious barriers.
Intergenerational solidarity:
- Public debt concern: "public debt, which now hovers around 110 percent of GDP among the advanced economies—the highest level since World War II."
- Environmental stewardship: climate change described as "by far the greatest economic challenge of the 21st century"; global temperature in 2012 "was among the hottest since records began in 1880."
- Policy priorities include carbon pricing and removing fossil fuel subsidies to enable "green growth."

Demand for transparency, good governance, and mutual responsibility between institutions and informed citizens.
Public sector:
- Good governance as the bedrock of economic success; "Zero tolerance for corruption must be foundational."
- The state should serve the people and provide an enabling environment for the private sector.
Private sector:
- Private sector goals must include adding value, creating jobs, and developing ideas beyond profit-seeking.
- Financial sector governance failures were central to the global crisis; reforms remain incomplete.
Financial sector reform priorities for 2013:
- Finish the job of financial sector reform; counteract signs of waning commitment, dilution of reforms, delays, and inconsistency.
- Prevent weakening in capital and liquidity standards.
- Make progress on cross-border resolution, shadow banking, and derivatives.
- Move toward more prudent compensation practices.
- Overall goal: a financial sector that is accountable to the real economy.
International institutions:
- IMF must increase openness, transparency, and governance reform so "all countries have a fair stake in the running of the institution."
- IMF's mandate: service for its 188 member countries and accountability to citizens demanding effectiveness.

Outlook: 2013 can be "a defining year in terms of finally getting beyond the crisis."
Long-term perspective: emergence of a global economy that is geographically and generationally different—driven more by dynamic emerging markets and shaped by new values (openness, inclusion, accountability).
Call to action: embrace the new era’s values, act with intelligence, goodwill, and courage; IMF pledges readiness to help.

Source: "A New Global Economy for a New Generation" By Christine Lagarde, Managing Director, International Monetary Fund; January 23, 2013.