Mediocre economic growth could become the “new reality,” leaving millions stuck without jobs and increasing the risks to global financial stability, the head of the International Monetary Fund warned on Thursday.
Christine Lagarde, the managing director of the IMF, first warned in October the global economy could be stuck on a “new mediocre” growth path with high debt and unemployment, unless policymakers act.
“Today, we must prevent that new mediocre from becoming the ‘new reality,'” Lagarde said, according to prepared remarks at the Washington-based Atlantic Council.
Speaking ahead of the release of the IMF’s economic forecasts next week, Lagarde said global growth this year is similar to last year, while it is slightly better for advanced economies and slightly worse for emerging markets.
In its last forecasts in January, the IMF said the global economy grew 3.3 percent last year, advanced economies expanded by 1.8 percent and emerging markets grew 4.4 percent.
“It is not that overall growth is bad,” Lagarde said. “It is rather that, given the lingering impact of the Great Recession on people … growth is just not good enough.”
While loose monetary policies are still needed, especially in the euro zone and Japan, very low interest rates are also breeding financial instability as investors tolerate higher risks and may overprice assets.
Lagarde also warned about the potential negative impact of the sharp appreciation of the U.S. dollar over the past six months, as the Federal Reserve prepares to raise rates while other central banks stay put.
She said some firms in emerging markets are particularly vulnerable as they deal with a higher dollar, lower commodity prices and higher borrowing costs.
As in previous speeches, Lagarde called for policymakers to pursue structural reforms, including infrastructure investment and trade reform.
“Frankly, in too many countries, these reforms have been lagging,” she said.