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Time is Running Out to Revive Economy, IMF Chief Warns

Ms Lagarde called for \"potent\" policies to confront the many challenges facing the global economy and boost confidence.

Published: 06th April 2016 07:58 AM  |   Last Updated: 06th April 2016 07:59 AM   |  A+A-

TIME is running out for policymakers to stop the scars of the 2008 financial crisis from destroying the social fabric of nations, the head of the International Monetary Fund has warned.

Christine Lagarde said that co-ordinated action was needed to prevent the global economy from slipping into a "new mediocre" of low growth that would be "hard to reverse".

While Ms Lagarde stressed that the global economy was not in crisis, she said the outlook had darkened over the past six months, while downside risks had increased.

The recovery in advanced economies such as the UK and US had been weaker than anticipated, while recessions in Brazil and Russia were deeper and more prolonged, she said.

Ms Lagarde called for "potent" policies to confront the many challenges facing the global economy and boost confidence.

Speaking in Frankfurt, Germany, she described the recovery as "too slow" and "too fragile", while risks to its durability were increasing.

She warned that persistent low growth could become "self reinforcing" if policymakers kept delaying action.

"This has consequences for the social and political fabric in many countries, even in Germany, where the economy has been strong.

"We can do better, we must do better - but to do so, policies must go further. And the policy mix must be more potent."

Ms Lagarde urged policymakers to avoid the "tragic course" of retreating into protectionism as countries struggle to cope with the refugee crisis while dealing with high unemployment and growing inequality.

"To some, the answer is to look inward, to somehow unwind these linkages, to close borders and retreat into protectionism. As history has told us - time and again - this would be a tragic course," said Ms Lagarde.

"The answer to the reality of our interconnected world is not fragmentation. It is co-operation."

She called for policymakers to adopt a "three-pronged" plan of action of structural, fiscal and monetary policies.

Reforms were needed in all countries, from the US to low-income, developing nations, Ms Lagarde said.

Growth-friendly fiscal policies such as public investment and encouraging research and development would also boost the effectiveness of monetary stimulus.

While she described this approach as "old hat", policy co-ordination would be "significant" and "mutually reinforcing".

"Let me be clear: we are on alert, not alarm. There has been a loss of growth momentum.

"However, if policymakers can confront the challenges, and act together, the positive effects on global confidence - and the global economy - will be substantial," Ms Lagarde said.

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