Lagarde Calls for ‘Policy Upgrade’ to Combat Uncertain Global Outlook

SUMMARY

Policymakers will need to strengthen policies to address current challenges and help lead the world economy to recovery, IMF Managing Director Christine Lagarde said in a speech at the Council of the Americas.

 
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  • Global growth remains disappointing and uneven
  • Policy upgrade needed to address current challenges
  • International cooperation crucial to manage economic transitions
  • “I am calling on policymakers to make a policy upgrade to address the current challenges,” Lagarde said.

    Lagarde, speaking ahead of the IMF-World Bank Annual Meetings that take place October 9-11 in Lima, Peru, stated that the world is at a “difficult and complex juncture.”

    The prospect of rising U.S. interest rates, China’s slowdown, a sharp deceleration in the growth of global trade, and the rapid drop in commodity prices are contributing to global uncertainty, she noted.

    With conflict and forced migration, Lagarde said, there is the “human toll” from economic dislocation and low activity. More than 200 million people remain unemployed worldwide, income inequality is rising, and women continue to be disadvantaged both in pay and labor market opportunities.

    “My key message today, however, is this: with the right policies, strong leadership, and global cooperation, it can be managed,” Lagarde stressed.

    Major economic transitions

    Lagarde, noting that the IMF’s global projections will be released next week, warned that “global growth will likely be weaker this year than last, with only a modest acceleration expected in 2016.”

    The “good news,” Lagarde said, is a modest pick-up in advanced economies, but the “not-so-good news” is that emerging economies are likely to see their fifth consecutive year of declining rates of growth. “If we put all this together, we see global growth that is disappointing and uneven.”

    This outlook, Lagarde explained, is heavily affected by “major economic transitions”— namely, China’s transition to a new growth model and the normalization of U.S. monetary policy—that are creating global ripple effects or “spillovers and spillbacks.”

    But Lagarde stressed that these shifts are “necessary and healthy.” “They are good for China, good for the United States, and good for the world. The challenge is to manage them as efficiently and as smoothly as possible.”

    ‘Policy upgrade’ needed

    Lagarde noted that these transitions can be managed by supporting demand, preserving financial stability, and implementing structural reforms. But she warned that “action is required now.”

    “The...

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