Lagarde Sets Out Global Policy Actions to Stay Ahead of Crisis

Financial conditions improving, but not yet translating into enough growth, jobs

Three-speed global economy emerging

All must act together to stay ahead of crisis

“In far too many countries, improvements in financial markets have not translated into improvements in the real economy—and in the lives of people,” she noted. Lagarde was speaking ahead of the IMF-World Bank Spring Meetings that take place April 19-21 in Washington, involving economic policymakers from the IMF’s 188 member countries.

Lagarde observed that while the global economy had shown signs of strengthening since six months ago “yet, global growth is not expected to be much higher this year than last,” she said. “We are seeing new risks as well as old risks.”

The IMF Managing Director noted that we are seeing the emergence of a “three-speed” global economy—those countries that are doing well (mainly the emerging markets and developing countries), those that are on the mend (including the United States), and those that still have some distance to travel (such as the Euro Area and Japan).

Three-speed global economy

All three groups need action to stay ahead of the crisis:

• The emerging markets and developing economies are worrying about the potential fallout from exceptionally loose monetary policy in advanced economies. These countries need to boost their defenses including by rebuilding fiscal policy space and stepping up banking sector regulation and supervision.

At the same time, advanced economies also bear some responsibility in terms of delivering a better fiscal policy and more financial repair.

• While the fiscal cliff had been avoided, the United States needs a more balanced fiscal policy, which is now too aggressive in the short term and too timid in the medium term. At this point in the recovery, it is more important than ever to put in place a credible medium-term roadmap to bring down the debt.

• While euro area policymakers have taken a number of significant steps, the priority in that region is to clean up...