IMF calls for more global growth

International Monetary Fund (IMF) Director Christine Lagarde delivers her speech on the global economy ahead of the fall meetings of the IMF and World Bank at Georgetown University in Washington on Thursday. REUTERS/Gary Cameron

The head of the International Monetary Fund (IMF) has urged new momentum to fuel global economic growth that has recovered slower than expected.

Christine Lagarde, the IMF managing director, said on Thursday that the 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 risks.

"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. The world needs to aim higher and try harder, to do it together and be country-specific," Lagarde told an audience of mostly students and faculty at Georgetown University in Washington.

While the IMF will release its updated forecast for the world economy next week during the IMF/World Bank annual meetings, the global economy is weaker than the IMF had envisaged six months ago. Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down, according to Lagarde.

She credited the emerging market and developing countries for doing much of the heavy lifting during the financial crisis six years ago. These countries have accounted for more than 80 percent of the world growth since 2008.

"Led by Asia, and China in particular, we expect that they will continue to drive global activity," said Lagarde. But she noted that these emerging markets and developing countries are likely to be at a slower pace than before.

Lagarde cited the United States and Britain as having the strongest rebound among developed countries, Japan the modest and Europe the weakest. She described low-income developing countries as having rising economic prospects but said the Middle East is clouded by difficult economic transitions and by intense social and political strife.

In a talk at the Brookings Institution last Friday, Markus Rodlauer, deputy director of IMF’s Asia and Pacific Department, said for now the IMF has not changed its forecast for China’s GDP growth at 7.4 percent for 2014.

While Rodlauer expects the Chinese economy to have a moderate slowdown to 7.1 percent in 2015, he cautioned that growth in China is highly policy-dependent. "It really depends on what the authorities want to do," he said.

China’s GDP grew 7.7 percent in 2013, the lowest since 1999 but substantially high by world standards.

Although the Chinese economy is slowing, Rodlauer, who just returned from a trip to China, said, "We don’t see a hard-landing risk, and even though it’s slowing, it’s a good slowdown. And therefore we would like to say, don’t get nervous, don’t lose your nerve."

A lot of economists believe that China’s economic reforms might slow down the growth rate but will help sustain future growth.

Rodlauer said that Chinese authorities have used "targeted stimulus" and "we are very happy that it is not a broad-based stimulus, as it used to be in the past."

"Continue with reforms, but don’t over-stimulate," he said.

According to Rodlauer, 1 percent point low growth in China would translate into about 0.1 percent point less global growth, with larger impacts on selected economies.

Lagarde also warned of the buildup of financial sector excess and especially shadow banking, which is less regulated and conducted by the nonbank sector.

Saying that shadow banking in the US is much larger than the traditional banking system and roughly half the size in Europe, Lagarde also noted that shadow banking in China now accounts for 25 to 35 percent of GDP, the fifth-largest in the world.

She called for more growth-friendly and job-friendly fiscal policies, saying that a continued gradual approach with clear communication from the US Federal Reserve is key for it to exit the quantitative easing to reduce its negative impact on other parts of the world.

She also called for structural reforms that are essential to raise productivity, competitiveness and employment and more public investment in infrastructure.

Rodlauer described the reform blueprint coming out of the Third Plenum of the 18th Communist Party of China Central Committee late last year as "going in the right direction" and "it touches on all the important reforms in the economic sphere."

The blueprint has painted a path that will transform the Chinese economy to be less dependent on investment but more on domestic consumption. It also promised a series of financial reforms, such as the liberalization of the interest rates and exchange reform.

David Dollar, a senior fellow at the Brookings, said he agreed with the IMF assessment that moving more quickly on reforms in China is a good way to try to reduce the risks and sustain growth in the long-term.

"There are risks in the reform, these are big, complicated reforms, you know, liberalizing interest rates, opening the capital account, you know, frankly, this is quite risky, so I sympathize that the officials want to move slowly," he said at last Friday’s seminar at Brookings.

chenweihua@chinadailyusa.com