Stay Focused on Policies for Jobs, Growth—Lagarde

Global momentum strengthened in late 2013, set for further gains in 2014

Big priority in 2014 is for policymakers to fortify feeble global recovery

World could create lots more jobs before needing to worry about inflation

She told a Washington D.C. audience January 15 that the world economy had avoided a worst case scenario thanks to the efforts of global policymakers over the past half decade.

In remarks at the National Press Club in the U.S. capital, Lagarde said global growth momentum had strengthened in the latter half of 2013, and should strengthen further in 2014, largely due to improvements in the advanced economies.

“Overall, the direction is positive, but global growth is still too low, too fragile, and too uneven,” Lagarde stated. “It is not enough to create the jobs for the more than 200 million people around the world who need them.” In far too many countries, she observed, the benefits of growth are being enjoyed by far too few people.

Lagarde said 2014 will be a milestone year. It will mark the hundredth anniversary of the start of the First World War, the 70th anniversary of the Bretton Woods conference that gave birth to the IMF, and the 25th anniversary of the fall of the Berlin Wall.

“It will also mark the seventh anniversary of the financial market jitters that quickly turned into the greatest global economic calamity since the Great Depression,” she noted.

“Optimism is in the air: the deep freeze is behind, and the horizon is brighter,” Lagarde said. “My great hope is that 2014 will prove momentous in another way—the year in which the ‘seven weak years’, economically speaking, slide into ‘seven strong years.’ ” But, she added, getting beyond the crisis still requires a sustained and substantial policy effort, coordination, and the right policy mix.

Rising risks of deflation

For the advanced economies, the outlook is subject to significant risks, Lagarde said. With inflation running below many central bank targets, there are rising risks of deflation, which could prove disastrous for the recovery. “If inflation is the genie, then deflation is the ogre that must be fought decisively,” Lagarde said.

She noted that, during the years of financial crisis, emerging markets had kept the global economy afloat. Together with the developing countries, they accounted for three-quarters of global growth over the past half decade.

But a growing number of emerging markets are slowing down as the economic cycle turns, and there are...