IMF chief cheers broadest recovery in decade

Countries should try to boost productivity to lift wages, says IMF chief Christine Lagarde.
Countries should try to boost productivity to lift wages, says IMF chief Christine Lagarde.

But she warns of threats to global economy like high debt levels, social inequality, China's rapid credit expansion

WASHINGTON • The world economy is gaining strength and extending the broadest recovery since the start of the decade, even as issues such as inequality threaten to fray the fabric of society, International Monetary Fund (IMF) managing director Christine Lagarde said.

The IMF's updated global forecast will likely be "even more optimistic" when it is released next week, Ms Lagarde said in a speech on Thursday at Harvard University.

The IMF will release its World Economic Outlook on Tuesday at its annual meetings in Washington. In July, IMF projected that the global economy will grow 3.5 per cent this year and 3.6 per cent next year.

A "cyclical pickup" in investment and trade in advanced economies, especially in Europe and Japan, is creating better-than-expected growth, Ms Lagarde said. United States growth will be "above trend" this year and next, though forecasts are fluid due partly to the shifting prospects of tax reforms, she said.

Nearly three-quarters of the world is "experiencing an upswing" in terms of gross domestic product, and the end result is the broadest-based acceleration in global growth since the start of the decade, according to the fund.

Led by China and India, Asian emerging markets remain strong, while the outlook has become "a bit brighter" in other emerging and developing economies, including commodity exporters in sub-Saharan Africa and Latin America, she said.

"We are seeing some sun breaking through," Ms Lagarde said. "But it is not a clear sky." She warned that the global economy faces a number of threats, from high levels of debt in many countries, to rapid credit expansion in China and "excessive risk taking" in financial markets.

Persistently low growth since the 2008 financial crisis has reinforced the problem of inequality, while exposing "long-running weaknesses" in the world's ability to adapt to technological change and global integration, she said. "Our social fabric is fraying, and many countries are experiencing increased political polarisation," Ms Lagarde said.

The sunnier outlook sets a positive tone for next week's IMF meetings, which bring together finance ministers and central bankers from the fund's 189 member countries.

They may be heartened by the fact that US President Donald Trump has not followed through on most of his trade threats, such as vows to impose tariffs on foreign steel and penalise companies that shift production abroad.

Still, US efforts to overhaul the North American Free Trade Agreement and a trade deal with South Korea are under way.

Countries should try to boost productivity, which in turn would lift wages, through steps such as cutting red tape and spending more on research and development and infrastructure, she said.

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A version of this article appeared in the print edition of The Straits Times on October 07, 2017, with the headline 'IMF chief cheers broadest recovery in decade'. Print Edition | Subscribe