Economies must work together to avoid decade of low growth, IMF boss warns

The boss of the International Monetary Fund has made an impassioned plea for governments to make the next decade one of sustainable and inclusive growth that cuts national debt burdens and tackles high unemployment.

Christine Lagarde warned that developed and emerging economies still suffering the after-effects of the 2008 crash must collaborate better to avoid an era of low growth.

Speaking ahead of the Washington-based organisation’s spring conference next week, Lagarde welcomed a recovery in the US and UK, which she said was “firming up”, but voiced concerns about the eurozone and pointed to Russia and Brazil as major trading nations in economic trouble.

She said: “With overall growth moderate, the global economy continues to face a number of significant challenges. For example, what I have called the ‘low-low, high-high’ scenario: the risk of low growth-low inflation and high debt-high unemployment persists for a number of advanced economies.”

Calling for extra effort to rebuild battered consumer and business confidence, she invoked speeches by former US president John F Kennedy and Britain’s wartime leader Winston Churchill, who she quoted saying: “I never worry about action, only inaction.”

Lagarde, a right-of-centre former French finance minister, has become increasingly frustrated at the pace of progress in recent years on policies to spur growth, especially in the struggling 19-member eurozone.

While the European Central Bank has joined the Bank of England, the Bank of Japan and the US Federal Reserve in printing money to cut the cost of credit and stimulate demand, the IMF believes much of the ECB’s extra funding remains stuck in the banking system and unable to reach consumers and small businesses.

Lagarde also criticised European governments for allowing thousands of zombie companies to continue rolling over unsustainable debts seven years after the crash.

In a clear reference to the stagnation suffered by Japan over two decades – during which the government and the courts blocked petitions to wind up companies that were effectively insolvent – she said: “Effective insolvency frameworks are crucial to tackle the private debt overhang and deal with the total stock of €900bn [£654bn] in non-performing loans that is blocking credit channels.”

The organisation, best known for acting as lender of last resort to Greece, Ireland and Portugal, has come under fire for supporting austerity programmes as the price of sovereign rescue operations. Critics of the IMF have accused the organisation of doing more to delay the recovery of the eurozone area by imposing strict repayments schedules on indebted countries.

Greece made a €450m debt repayment to the IMF on Thursday that many economists – and the Greek government – have said it cannot afford. Echoing a report last week by the IMF, Lagarde said policies to spur growth and reform labour markets were the best remedies to reduce debts.

The report argued that potential growth in advanced economies was expected to increase slightly, from an average of about 1.3% a year in the last six years to 1.6% until 2020, but not reach the 2.25% average seen between 2001 and 2007 without further effort by individual governments and renewed collaboration through organisations such as the IMF.

theguardian.com