New Momentum Can Help Global Economy Beat Mediocre Growth

Global economy has to overcome brittle, uneven recovery that is beset by risks

Boosting mediocre growth requires policy momentum, multilateral action

Infrastructure investment can be powerful impetus for growth, jobs

In a Washington speech heralding next week’s IMF-World Bank Annual Meetings, Lagarde said the IMF’s main job now is to help the global economy shift gears and overcome a brittle and uneven recovery that is beset by risks.

She told an audience at the Georgetown University School of Foreign Service October 2 that the world economy is at an inflection point. “Yes, there is a recovery but, as you all know—and we can all feel it—the level of growth and jobs is simply not good enough.”

The world needs to aim higher and try harder, Lagarde stated. This means “bolder policies to inject a ‘new momentum’ that can overcome this ‘new mediocre’ that clouds the future.”

The Annual Meetings of the IMF and the World Bank Group each year bring together around 10,000 central bankers, ministers of finance and development, private sector executives, and academics to discuss issues of global concern, including the world economic outlook, poverty eradication, economic development, and aid effectiveness.

Weak growth, modest pickup

Six years after the financial crisis began, there is continued weakness in the global economy, and only a modest pickup is foreseen for 2015, Lagarde observed. Among advanced economies, the rebound is expected to be strongest in the United States; modest in Japan; and weakest in the euro area.

Led by Asia, and China in particular, emerging market and developing economies are expected to continue to help drive global activity. For them too, however, it is likely to be at a slower pace than before.

For the low-income developing countries, including sub-Saharan Africa, economic prospects are rising but, as debt builds up in some countries, they need to be watching as well. In the Middle East, the outlook is clouded by difficult economic transitions and by intense social and political strife.

The world economy risks getting stuck with a mediocre level of growth—low growth for a long time, Lagarde said. “If people expect growth potential to be lower tomorrow, they will cut back on investment and consumption today. This dynamic could seriously impede the recovery, especially in advanced economies that are also grappling with high unemployment and low inflation.”

Migration to ‘the shadows’

Lagarde also pointed to concern...