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IMF's Lagarde voices concern over global economy
REFILE - CORRECTING TYPO IN NAME International Monetary Fund (IMF) Managing Director Christine Lagarde (L) shakes hands with Japan's Prime Minister Yoshihiko Noda during their talks at Noda's official residence in Tokyo July 6, 2012.
Credit: Reuters/Toru Yamanaka/Pool
TOKYO |
TOKYO (Reuters) - The head of the International Monetary Fund expressed concern on Friday at a deterioration in the global economy, saying the outlook has become more worrying as developed and big emerging nations show signs of slowing down.
The comments by IMF Managing Director Christine Lagarde came after the European Central Bank, the Bank of England and China's central bank all eased monetary policy in a sign of the growing alarm over the health of the world economy.
Financial markets will be glued later on Friday to news of U.S. jobs data for the month of June for the latest sign on the health of the world's biggest economy, which has shown signs of losing momentum.
China, the world's second-biggest economy, releases a raft of data next week, including on second-quarter GDP.
"In the last few months, the global outlook has been more worrying for Europe, the United States and large emerging markets," Lagarde said in a speech in Tokyo.
The IMF will downgrade some of its economic forecasts later this month as economic data from major and emerging economies has deteriorated in recent months, she said.
"The IMF's forecasts are likely to be lower than our previous forecasts."
The IMF will publish an update to its World Economic Outlook report on July 16.
She welcomed growing cooperation in Europe to tackle the sovereign debt crisis but said that further fiscal cooperation was needed.
In the IMF's April report, it revised upward its global growth forecast for this year to 3.5 percent from 3.3 percent in January, and to 4.1 percent for 2013 from 3.9 percent previously.
Lagarde acknowledged that the two main concerns for Japan's economy were a further appreciation of the yen and risks posed by Europe's debt crisis to demand for Japanese exports.
The yen is moderately overvalued and there is a risk it could rise further if Europe's debt crisis spurs a flight away from riskier assets, she said.
(Editing by Neil Fullick)
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She relies instead on the accountant mentality at the Fund, on technicians brought up to worship the Fund’s outdated macroeconomic model- aka The Monetary Theory of the International Balance of Payments. It was developed by the late Jacques J. Polak in 1957 as a highly simplified paradigm to guide those in charge of the Fund in their then main role: monitoring and control of a now long defunct virtually global fixed foreign exchange rate mechanism. Despite its antiquity and its lack of applicability as a guide to appropriate policies to get us out of the 1930s type of economic hell we are living through it is still regarded inside the Beltway and the corridors of power in Western Europe as the Holy Bible of the Fund.
People tend to forget that the great monetarist of the C20th was not Milton Friedman but Maynard Keynes whose macroeconomic theories were designed primarily as a way out of a particularly serious quagmire. The ECB yesterday lowered its short term rate in obvious ignorance of the Keynesian liquidity trap, which he described- to paraphrase him- “in which attempting to restart a stalled economy by lowering short term interest rates toward zero is as effective as trying to push a string”.
Alas, the mistakes of the 1930s are being repeated; instead of following expansive policies, encouraging private investment, lowering taxes and other measures to encourage growth of income an employment, which will boosting state revenues they are now doing the opposite.
Madame Lagarde may be given a some credit for feeling that something is wrong but her feelings of malaise must be surely much less than that of the unfortunate victims of the fund whose living standards are being reduced and are either unemployed or fear that they may be jobless soon. Madame Lagarde has not displayed any skills in acting on her feelings or any sign of seeking help from outside her ting of accountants and other Polak acolytes.
To employ lawyers, accountants, bankers an even a physician to guide regional and global economic growth is akin to appointing an expert racing cyclist with no aviation experience as first pilot of a jumbo jet aircraft.A
t the present rate of slow awareness of the facts the global crash will become a reality well before Madame Lagarde’s term of office ends four years from now. She will not be remembered kindly by economic historians.
There really is nothing new happening regarding Europe or the BRICs; there situations have been developing, slowly, but consistently, for many months. That anything big should come as a surprise is rather disappointing. The crises have been looming on the horizon, and it was inevitable that they would soon become too big to ignore.
The larger the economy(ies) the more ponderous and subject to inertia it is. The leaders in charge need to recognize and acknowledge this. We must address problems far in the distance, before coming so close that adequate adjustments become impossible. I fear that with the present world economy, the acknowledgement has come far too late.
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