WASHINGTON, D.C.: International Monetary Fund (IMF) Chief Christine Lagarde warned on Thursday that rich and poor countries alike need more aggressive reform and investment to wrest the global economy from sluggish growth.
Saying that the world is mired in a “new mediocre,” the head of the crisis lender said many economies remain held back by the effects of the 2008 financial crisis.
Many advanced economies in particular are stuck with a combination of low growth, low inflation, high debt and high unemployment.
Other less advanced economies continue to struggle with volatile capital flows and currency shifts that make it harder for them to keep a steady course.
“The global recovery continues, but it is moderate and uneven. In too many parts of the world it is not strong enough. In too many parts of the world, people do not feel it enough,” Lagarde said, according to the text of a speech to the Atlantic Council.
Lagarde said the big issue facing the world is that while growth currently is moderate, “so too are medium-term prospects.”
Some of that comes from the hangover of the financial crisis; another factor, especially in advanced countries, is the challenge of boosting production as populations age and labor force growth slackens.
While each country’s problems can be different, getting the global economy growing at a better pace requires determined structural reforms to investment rules, competitive environments, labor markets and other areas by all countries.
“Frankly, in too many countries, these reforms have been lagging,” she said.
Stagnant Europe, for example, needs reforms that would accelerate a shakeout of the heavily indebted small and medium-sized enterprise sector.
Putting them on a firmer footing “would yield a big payoff,” she said.
On the contrary, in China, where growth is slowing, reforms could help give small businesses needed access to financing.
And Japan and Europe both need to remove tax disincentives to great participation in the workforce.
On top of reform, she added, investment in infrastructure can deliver a strong charge to economic output.
IMF research “shows that boosting efficient infrastructure investment can be a powerful impetus for growth both in the short run and in the long run.”
She said global cooperation between global and regional institutions, including China’s new Asian Infrastructure Investment Bank, would help in this direction.
Lagarde noted that reforms can be politically challenging and involve hard tradeoff for many governments.
“But in the long run, everybody wins,” she said.