Lagarde: New Global Transitions Need New Global Agenda

Transition in the patterns of global growth between advanced and developing economies

Transition toward different kind of financial sector

Stepped up international collaboration critical

Two transitions—economic and financial

Lagarde highlighted two new transitions: one in the pattern of economic growth, and another toward a different kind of financial sector.

“The transitions I am talking about today are different,” Lagarde told the audience. “They will likely play out over the rest of the decade, if not longer. And they will require not only active national policy management, but also active international policy collaboration."

“These new global transitions need a new global agenda,” she said.

“With the right policies, these transitions can be managed,” Lagarde pointed out. “But of course, they can be derailed by the wrong policies.”

Economic transition—advanced economies

Lagarde noted that although the global outlook remained subdued, there were “signs of hope” from advanced economies—the United States, the Euro Area, and Japan.

The Managing Director stressed the important role played by monetary policy. Any pending normalization of monetary policy in the United States needs to be managed carefully, Lagarde cautioned, noting that the U.S. has a special responsibility “to implement it in an orderly way, linking it to the pace of recovery and employment; to communicate clearly; and to conduct a dialogue with others.”

Monetary policy has bought some time and space, she said. The key is to use the time wisely and take advantage of this space, highlighting the need for all advanced economies to move on a broad policy front, but with different emphases. This means financial effort in the Euro Area, restoring banks to health; fiscal effort in the United States and Japan, making debt more sustainable; and structural effort in the Euro Area and Japan, where policies to boost supply can pay off in terms of growth and jobs.

In the midst of U.S. fiscal challenges, Lagarde said, the ongoing political uncertainty over the budget and the debt ceiling does not help. “The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the U.S. economy, but the entire global economy,” she warned. “So it is ‘mission-critical’ that this be resolved as soon as possible.”

Economic transition—emerging markets and low-income countries

While the emerging markets drove the recovery...