Make 2015 ‘Year of Action and Political Leadership’—Lagarde

Global recovery faces strong headwind despite cheaper oil, higher U.S. growth

Global growth too low, too brittle, too lopsided; with significant downside risks

Decisive push for structural reforms would boost current, medium-term growth

She told a Washington audience the global economy is facing strong headwind despite the boost from positive factors such as cheaper oil and stronger U.S. growth.

“More than six years after the Great Recession, too many people still do not feel the recovery. This is why we need a decisive push for structural reforms to boost current and potential growth over the medium term,” she told the Council on Foreign Relations, adding that good teamwork and strong leadership will be needed.

Lagarde said the global economy will face in 2015 three major policy challenges that will require decisions based on political courage, decisive action, and truly multilateral thinking: boosting growth and employment; achieving more inclusive, shared growth; and attaining more sustainable, balanced growth. She noted that these pivotal issues are deeply interconnected and mutually dependent. “All are important, all demand strong leadership, all require cooperation.”

She said the drop in oil prices is a welcome shot in the arm that boosts consumers’ purchasing power in oil-importing countries, and the U.S. economy should strengthen further this year, largely due to more robust household spending.

But lower oil prices and U.S. growth are not a cure for deep-seated weaknesses elsewhere, Lagarde cautioned. “Too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment. Too many companies and households keep cutting back on investment and consumption today because they are concerned about low growth in the future.”

Significant risks

Lagarde said world growth is still too low, too brittle, and too lopsided, and stressed there are significant risks to a global economic recovery.

• Emerging and developing economies could face a triple hit of a strengthening U.S. dollar, higher global interest rates, and more volatile capital flows;

• The euro area and Japan could remain stuck in a world of low growth and low inflation for a prolonged period; and

• There are increased geopolitical risks.

These risks require a powerful policy mix that can strengthen the recovery and provide better employment perspectives for citizens worldwide, Lagarde stated. “Accommodative monetary policies...