Lagarde Hails Growth But Calls On Governments To Do More On Debt

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The global economy is enjoying its best growth spurt since the start of the decade, Christine Lagarde, head of the International Monetary Fund, said on Thursday as she urged governments and companies not to “let a good recovery go to waste”. 

Ms Lagarde indicated that the IMF’s regular assessment of the world economy will show signs of strength when it is released next week, as would the fund’s reports on financial stability and the outlook for public finances.

“The long-awaited global recovery is taking root,” she said in a speech at the Kennedy School of Government at Harvard University, predicting that the fund’s forecasts for growth and jobs “will probably be even more optimistic” than they were six months ago in April.

Her speech marks a moment of optimism in the global outlook, with all G20 leading economies expected to expand this year for the first time since 2010. 

Ms Lagarde urged countries to use benign economic circumstances to improve longer-term prospects so that the economic upswing retains popular support and does not fizzle out.

The eurozone has staged an unexpectedly strong and broad recovery this year, fuelled by household consumption and business investment even in countries, such as Italy and Portugal, that were hit hard by both the global financial crisis and the subsequent euro woes.

With spending growing rapidly in Japan, and the US bouncing back from a weak first quarter, advanced economies are generally performing significantly better than expected a year ago, with the exception of the UK.

Britain’s growth rate has been undermined by the Brexit vote’s negative effect on confidence and squeezed household finances caused by a weaker pound pushing up the cost of imports. 

China’s growth performance was strong, and India was still likely to be the fastest growing large economy in the world, Ms Lagarde said. 

But the IMF managing director argued that rather than sit back and enjoy the outlook, central banks and companies should learn from John F Kennedy, who said: “The time to repair the roof is when the sun is shining.”

She added: “Yes, we are seeing some sun break through, but it is not a clear sky.” She urged countries to intensify economic reforms that were easier to implement in good times.

She gave the green light to plans by the US Federal Reserve, the European Central Bank and the Bank of England to normalise monetary policy, by raising interest rates or reining in asset purchases, as long as the process was “smooth” and did not surprise markets. 

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Ms Lagarde also urged most countries to intensify their efforts to get public finances under control, with the exception of Germany and South Korea, which have much lower levels of debt.

But she gave most emphasis to her message that all countries should seek to prolong the upswing by “cutting red tape, increasing spending on research and development, and investing in infrastructure”.

Praising Japanese labour market reforms, which have increased childcare subsidies and raised the number of women in work, she said many other countries should try “using cash to get more people into work, particularly women”. 

Ms Lagarde insisted that growth must be inclusive, suggesting a controversial policy of increasing top income tax rates at a time when the US has proposed cuts. 

“New IMF research, which will be released next week, suggests that some advanced economies could raise their top tax rates without slowing growth,” she said. 

This is source I found from another site, main source you can find in last paragraph

Source : https://www.ft.com/content/2d181e44-a9ed-11e7-ab55-27219df83c97

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