Global economic activity should strengthen in the second half of the year and accelerate in 2015, although momentum could be weaker than expected, Christine Lagarde, head of the International Monetary Fund, said on Sunday, hinting at a slight cut in the fund's growth forecasts.
Lagarde said central banks' accommodative policies may have only a 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 predicted that global output would grow by 3.6% in 2014 and 3.9% 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 that 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 said.
"We must therefore take steps to boost efforts to strengthen growth. 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.
After a first quarter that was more disappointing than expected, there was now a marked rebound in the US economy, she said. Growth should accelerate 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 eurozone 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 added that 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 7-7.5% this year."
3 comments:
Investors have been far too complacent for far too long about the eurozone. The crisis is not over; it is merely in remission, and not just in the periphery. While the British economy has been recovering in spectacular fashion over the past year, the reverse has been true of vast swathes of the eurozone.
The latest industrial production figures in particular have been abysmal, including even in Germany; the fact that poor economic data coincided with the latest banking crisis in Portugal is what finally tipped the markets over the edge on Thursday, sending equity markets lower and bond yields higher.
Global institutions were already nervous about the large-scale stress-testing of commercial bank balance sheets currently being conducted by the European Central Bank; now they are starting to worry that parts of the financial system will need to find even more money to strengthen their capital positions. Recessions inevitably entail much more bad debt, which damages banks and in turn makes it harder for them to lend, even to solvent businesses and consumers.
The proximate cause of Thursday’s market chaos was Portugal and the turmoil at the Espirito Santo Financial Group but France could prove to be a much greater problem. Its industrial production collapsed by 3.7pc year on year and means that a drop in second quarter French GDP now looks very likely. While the small Portuguese and much larger Spanish economies and financial systems are closely intertwined, another recession in France would have even graver economic and geopolitical consequences than a fresh Iberian slump and would take down the rest of the continent’s economy with it.
Investors have been far too complacent for far too long about the eurozone. The crisis is not over; it is merely in remission, and not just in the periphery. While the British economy has been recovering in spectacular fashion over the past year, the reverse has been true of vast swathes of the eurozone.
The latest industrial production figures in particular have been abysmal, including even in Germany; the fact that poor economic data coincided with the latest banking crisis in Portugal is what finally tipped the markets over the edge on Thursday, sending equity markets lower and bond yields higher.
Global institutions were already nervous about the large-scale stress-testing of commercial bank balance sheets currently being conducted by the European Central Bank; now they are starting to worry that parts of the financial system will need to find even more money to strengthen their capital positions. Recessions inevitably entail much more bad debt, which damages banks and in turn makes it harder for them to lend, even to solvent businesses and consumers.
The proximate cause of Thursday’s market chaos was Portugal and the turmoil at the Espirito Santo Financial Group but France could prove to be a much greater problem. Its industrial production collapsed by 3.7pc year on year and means that a drop in second quarter French GDP now looks very likely. While the small Portuguese and much larger Spanish economies and financial systems are closely intertwined, another recession in France would have even graver economic and geopolitical consequences than a fresh Iberian slump and would take down the rest of the continent’s economy with it.
Investors have been far too complacent for far too long about the eurozone. The crisis is not over; it is merely in remission, and not just in the periphery. While the British economy has been recovering in spectacular fashion over the past year, the reverse has been true of vast swathes of the eurozone.
The latest industrial production figures in particular have been abysmal, including even in Germany; the fact that poor economic data coincided with the latest banking crisis in Portugal is what finally tipped the markets over the edge on Thursday, sending equity markets lower and bond yields higher.
Global institutions were already nervous about the large-scale stress-testing of commercial bank balance sheets currently being conducted by the European Central Bank; now they are starting to worry that parts of the financial system will need to find even more money to strengthen their capital positions. Recessions inevitably entail much more bad debt, which damages banks and in turn makes it harder for them to lend, even to solvent businesses and consumers.
The proximate cause of Thursday’s market chaos was Portugal and the turmoil at the Espirito Santo Financial Group but France could prove to be a much greater problem. Its industrial production collapsed by 3.7pc year on year and means that a drop in second quarter French GDP now looks very likely. While the small Portuguese and much larger Spanish economies and financial systems are closely intertwined, another recession in France would have even graver economic and geopolitical consequences than a fresh Iberian slump and would take down the rest of the continent’s economy with it.
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