Lagarde: Prevent "€œNew Mediocre" From Becoming "€œNew Reality"

Global recovery continues, but it is moderate and uneven

Boosting growth requires more effective demand policies, structural reforms

International cooperation critical to future growth and development

“Six months ago, I warned about the risk of a ‘new mediocre’—low growth for a long time, Lagarde pointed out. “Today, we must prevent that new mediocre from becoming the ‘new reality’.”

Lagarde, speaking ahead of the IMF-World Bank Spring Meetings that take place April 17-19 in Washington, observed that since the Annual Meetings last October, the global economy has benefited from lower oil prices and by the strong performance of the world’s largest economy, the United States. “So the global recovery continues, but it is moderate and uneven.”

“The challenge for policymakers around the world is to combine the policies needed to boost today’s growth with those fortifying tomorrow’s prospects,” she noted.

The Managing Director stressed that, while global growth is not bad—at 3.4 percent last year it is roughly the average for the last three decades—it is “just not good enough.” She urged policymakers to press ahead with needed reforms.

Quoting John F. Kennedy on the risks of inaction, Lagarde warned that “comfortable inaction is what must be avoided.”

Lifting growth today

Lagarde said that growth remains moderate—roughly the same as last year. Advanced economies are doing a bit better than last year and prospects in the euro area are improving. But forecasts for most emerging and developing economies are a bit worse than last year, mainly owing to lower commodity prices. However, Lagarde pointed out that “there is tremendous diversity within this group.”

With overall growth moderate, the global economy continues to face significant challenges:

Macroeconomic risks. The risk of low growth-low inflation, and high debt-high unemployment persists for a number of advanced economies. These countries should use demand policies to lift today’s growth. Continued monetary accommodation is needed—especially in the euro area and Japan—and fiscal policy should be better calibrated to the strength of the recovery.

Financial risks. Risks to global financial stability are rising and they are also migrating—for example, from banks to nonbanks and from advanced economies more toward emerging markets. To address these risks, at the global level, this means ensuring market liquidity during times of stress, improving macro- and micro-prudential policies for...