The global economy could be stuck in a weak growth rut for a long time as countries struggle to pull free from a past of high debt and unemployment, the head of the International Monetary Fund said on Thursday.
Continue Reading Below
The economic rebound is even weaker than the IMF predicted six months ago, and countries risk getting stuck in a prolonged period of sluggish growth, especially in the euro zone, Christine Lagarde, the IMF's managing director, said.
"Yes, there is a recovery but as we all know - and can all feel it - the level of growth and jobs is simply not good enough," Lagarde said in remarks at Georgetown University in Washington. "The world needs to aim higher and try harder."
Lagarde said the IMF pared its expectations for potential growth, or the change in the global economy's ability to produce.
In its last forecast in July, the IMF said the global economy should expand 3.4 percent this year, with growth speeding up to 4 percent in 2015.
Lagarde, who spoke ahead of the IMF and World Bank fall meetings next week, chronicled a series of "clouds on the horizon" that could hurt the global economy, including central banks' differing plans to raise interest rates.
Continue Reading Below
Central banks in the United States, Japan, the euro zone and Britain have all sharply lowered rates to boost economic growth. But the United States and Britain are now considering "normalizing" their policies and starting to raise rates, which could prompt gyrations in foreign exchange rates, Lagarde said.
"Moreover, the longer easy money policies continue, the greater the risk of fueling financial excess," she said. "This needs to be monitored and managed."
The expectations of diverging monetary policies in the United States and the euro zone has already been seen in foreign exchange markets. The dollar index, which measures the U.S. dollar against six major currencies, surged nearly 8 percent in the just-ended third quarter, its best quarterly performance in six years.
On Thursday, however, the euro rose against the dollar for the first time in eight days.
Lagarde warned that financial risks could emerge, as asset valuations in advanced economies have shot up while volatility stays low, and riskier transactions start to migrate to the shadow banking sector.
Geopolitical risks could also derail the recovery, she said, pointing to turmoil in Ukraine, the Middle East and some parts of Asia, as well as the outbreak of the deadly Ebola virus in West Africa.
She called on policymakers to do more to boost economic growth and create jobs, including reforming labor market policies, combating tax evasion and investing in infrastructure.
"Our main job now is to help the global economy shift gears and overcome what has been so far a disappointing recovery: one that is brittle, uneven and beset by risk," Lagarde said.
"It means a mix of bolder policies to inject a 'new momentum' that can overcome this 'new mediocre' that clouds the future."