IMF's Lagarde hints at world growth forecast cut

AIX-EN-PROVENCE France Sun Jul 6, 2014 8:48am EDT

International Monetary Fund (IMF) Managing Director Christine Lagarde delivers opening remarks at the inaugural Michel Camdessus Central Banking Lecture in Washington July 2, 2014. REUTERS/Gary Cameron (UNITED STATES - Tags: POLITICS BUSINESS)

International Monetary Fund (IMF) Managing Director Christine Lagarde delivers opening remarks at the inaugural Michel Camdessus Central Banking Lecture in Washington July 2, 2014.

Credit: Reuters/Gary Cameron (UNITED STATES - Tags: POLITICS BUSINESS)

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AIX-EN-PROVENCE France (Reuters) - Global economic activity should strengthen in the second half of the year and accelerate in 2015, although momentum could be weaker than expected, IMF chief Christine Lagarde said on Sunday, hinting at a slight cut in the Fund's growth forecasts.

Lagarde said central banks' accommodative policies may have only limited impact on demand and that countries should boost growth by investing in infrastructure, education and health, provided their debt stays sustainable.

The IMF's update of its global economic outlook, expected later this month, will be "very slightly different" from the forecasts published in April, she said. In April, the IMF had forecast that global output would grow by 3.6 percent in 2014 and 3.9 percent in 2015.

"Global activity is picking up but the momentum could be less strong than we had expected because potential growth is weaker and investment ... remains subdued," she told an economic conference in southern France.

Lagarde made a plea for more public investment, saying the "investment deficit" in both the public and private sectors was dragging down growth in most countries.

"Despite the many responses to the crisis ... recovery is modest, laborious, fragile, and measures to boost demand, despite the goodwill of central banks, will find their limits," she told a conference in southern France.

"We must therefore take steps to boost efforts to strengthen growth," she added. "This is the opportunity in a number of countries to relaunch investment, without threatening the viability of public finances."

Lagarde said several times in her speech that, although now could be the time for some countries to boost public investment, not all of them could afford to do so. The positive impact of public investment on growth could be strong enough to allow for some state projects without weighing on debt-to-GDP ratios, she said.

After a first quarter that was much more disappointing than expected, there was now a marked rebound in the U.S. economy, she said. Growth should accelerate, said Lagarde, as long as the Federal Reserve's withdrawal from its easy monetary policy is orderly and there is a precise medium-term budget framework.

The euro zone is slowly coming out of recession and it is crucial that countries continue to carry out reforms, including completing the banking union, she said.

Lagarde said the IMF did not expect a "brutal" slowdown in China.

"Looking at emerging Asian countries, and in particular China, we are reassured because we do not see a brutal slowdown but rather a slight slowing of a growth that has become ... more sustainable and that we see at 7 to 7.5 percent this year."

(Reporting by Ingrid Melander and Alexandre Boksenbaum-Granier; editing by Catherine Evans and Tom Pfeiffer)

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Comments (5)
Sinbad1 wrote:
The IMF might be a more honest source of information when the US is removed from control at the end of the year.

Jul 06, 2014 4:51am EDT  --  Report as abuse
breezinthru wrote:
Lagarde correctly alludes to the danger posed by Europe’s banks and the article makes thin mention of the continuing problem of Europe’s dreadful unemployment rate.

It’s worrisome that she stated several times that some European countries need to boost economic activity but can’t afford to do so. There will be no economic recovery in those countries and there is still high risk of recession for much of Europe.

Lagarde’s predictions regarding China are predicated on the assumption that fraud on a grand scale won’t derail their economy… financial instruments, local government real estate investments, fake inventories, etc..

Japan also poses a risk that seems to get little mention. For decades, Japan has relied heavily on nuclear reactors to inexpensively provide much the energy they need for economic activity. Since the disaster at Fukushima, they were forced to shut down 49 reactors.

They are desperate to restart those reactors but they still don’t even have a good plan to solve the problem of continuing radiation leaks at Fukushima.

Jul 06, 2014 9:07am EDT  --  Report as abuse
“Lagarde said central banks’ accommodative policies may have only limited impact on demand and that countries should boost growth by investing in infrastructure, education and health, provided their debt stays sustainable.”

This is certainly true enough, technically, and has been for several years. But the key actors in public investment are constrained either by ideology (like the US Congress) or the common currency (Euro area). Private actors will invest when projected demand justifies it.

maximillianwyse.wordpress.com

Jul 06, 2014 12:01pm EDT  --  Report as abuse
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