Global economic outlook is not 'armageddon,' IMF's Lagarde says

Ahead of the spring meetings of the International Monetary Fund and World Bank, IMF Managing Director Christine Lagarde told a news conference on Thursday that there is "no armageddon" in the global economy.

 

At the same time, Lagarde has also been speaking out about potential dangers for the global economy. Overreliance on currency depreciations to boost domestic economies could exacerbate global tensions over exchange rates, she also said Thursday. And the sharp rise of the dollar against the euro and yen is expected to be a major theme at the meeting of the world's top economic policymakers in Washington this week. The recent currency moves have exposed some emerging economies as well.

 

But during her news conference, Lagarde aimed to provide context to the risk factors.

 

"It's true that the emerging market economies are not doing as well as we had forecast initially and not as well as last year, slightly less, for obvious reasons. And it's not as if it's a cohesive group where everybody is going down. Some countries are clearly slowing down more than others. Brazil, for instance, is flat, and forecast to be slightly negative this year. China is slowing down and foreseeably so, and I think it's a determined approach and policy determination. Russia is not doing well at all and is in negative territory for obvious reasons, oil sanctions and the like of it. And the low income countries, on the other hand, are you know holding with a great diversity between those that have commodities and are suffering the backdrop of lower prices and those that are more on the import side of things and have had buffers and are holding better. So you know it's a mixed picture against which you have this financial stability, risk on the rise. But you know it's not armageddon," Lagarde said.

 

She also pointed out the good news.

 

"You know, I wouldn't want you to go away with the idea that everything is a risk, and there is no bright spot. Because there are bright spots in the global economy as we see it and you will have heard that, you know we always say, the macroeconomic risks have declined. We still have risks. But if you look at a few bright spots, you will see that the U.S. economy, for instance, is recovering quite strongly and we are seeing quite positive signs going forward. We are seeing that in Europe, the U.K. is clearly holding very strongly. The Euro area is also showing signs of recovery and much better than what we had seen lately. And Japan coming out of a slight recession is also forecast to be on the rise. And there are positive factors to explain that. Obviously, the decline in the oil price. Obviously the low interest rates at which those countries can finance and refinance themselves. All of that is helping. The exchange rate variations in a way are helping those countries that were most in the negative in the past," Lagarde said.

 

More than two dozen central banks have further eased monetary policy over the last few months to support their economies or counter global deflationary pressures.

 

According to OECD (Organisation for Economic Cooperation and Development) calculations, countries pursuing monetary easing in the last few months accounted for roughly half of global GDP.

 

Lagarde said the world still does not have a good system for helping countries in times of turmoil, as evidenced by recent exchange rate fluctuations and large capital flows and reserve accumulation in some emerging markets.

 

She added the IMF would not grant a payment delay to Greece, as it had never been done for an advanced economy and the Fund should protect its safe reputation.

 

"Payment delays have not been granted by the board of the IMF in the last 30 years. And it was eventually granted to a couple of developing countries. And that delay was actually not followed by very productive results. As you know the IMF is ruled-base, all options are available to all countries, it's clearly not a course of action that would be recommendable," she said.

 

Greece is fast running out of cash and its euro zone and IMF lenders have frozen bailout aid until the new leftist-led government in Athens reaches agreement on a package of reforms.

 

That has raised fears the Greek government will not be able to make its next payments to the IMF, which total some $1 billion over the next month, putting the Fund's own financial position at risk.

 

"My advice has not changed. My advice is to get on with the work, and the work needs to address both the short- and medium-term of the economy and the objective that we all pursue is to actually restore the stability of the Greek economy. But to do that, you know, it's not done by a political, last-minute accord. It's done by actually looking at measures, committing to reforms, measuring what the outcome will be. It's the tedious work of financial ministers wherever they are, and the lenders. So certainly what I hope that we can continue doing, at a faster pace, and certainly more in depth, is precisely that exercise so that the reforms can be implemented in order to encourage the Greek people, and the Greek economy, to be more stable, to be able to create more jobs, and to move on," Lagarde added.

 

The spring meetings of the World Bank and the International Monetary Fund are scheduled to take place in Washington DC, starting Friday (April 17) and running through Sunday (April 19).  — Reuters