FRANKFURT • The global economy's already modest prospects will decline further unless the authorities take stronger action to boost growth, the head of the International Monetary Fund warned yesterday, saying it would cut its headline forecasts next week.
Ms Christine Lagarde said China's shift to an economic model based more on domestic demand, stubbornly low commodity prices and tighter funding conditions in some countries had all clouded the outlook. "Let me be clear: We are on alert, not alarm. There has been a loss of growth momentum," she said in a speech at Frankfurt's Goethe University.
The recovery from the global financial crisis of 2007-09 "remains too slow, too fragile and risks to its durability are increasing".
But if policymakers confronted the challenges and acted together, "the positive effects on global confidence - and the global economy - will be substantial", she said.
Ms Lagarde advised the US to raise its minimum wage, Europe to improve job training and emerging economies to cut fuel subsidies and boost social spending.
ALERT, NOT ALARM
Let me be clear: We are on alert, not alarm. There has been a loss of growth momentum.
MS CHRISTINE LAGARDE, head of the IMF.
She gave her strongest hint yet that the IMF will cut its global economic forecasts next week. "The global outlook has weakened further over the last six months so you can (deduce) from that there will be a slight revision (in the IMF estimates)," Ms Lagarde said.
SLIGHT SHIFT DOWN
I will not disclose any numbers...
There will be a slight revision. The baseline has moved slightly downwards.
Her remarks come less than two weeks before ministers, central bankers and other policymakers from the fund's 188 member countries gather in Washington to assess the health of the world economy at the IMF and World Bank spring meetings.
While the recovery in the United States has been gaining momentum and some emerging markets including Mexico have performed well, the IMF views Europe and Japan as major disappointments. Also, China's slowing growth has hurt oil and commodity exporters, including Brazil and Russia.
Ms Lagarde also said the introduction of negative interest rates by the European Central Bank and Bank of Japan has been positive on the whole, despite "side effects that warrant vigilance".
She hinted that the IMF will cut its 2016 global growth forecast of 3.4 per cent next week. "I will not disclose any numbers here," she said. But "there will be a slight revision. The baseline has moved slightly downwards. There has been a loss of growth momentum".
Her comments add to signs that the IMF will downgrade its growth forecast when it releases its World Economic Outlook on April 12.
To counteract the headwinds, Ms Lagarde called for accelerated structural reforms, increased fiscal support and continued accommodative monetary policy.
She urged improved tax incentives for research and development investments, citing IMF data showing that a 40 per cent increase in R&D spending in advanced economies could yield a 5 per cent rise in GDP over 20 years.
Asked about negotiations between the IMF, European lenders and Greece over a new bailout programme for the heavily indebted country, Ms Lagarde told Bloomberg TV that the fund continued to negotiate "in good faith".
After Internet site WikiLeaks published an apparent transcript of an IMF conference call, Ms Lagarde denied that IMF staff might threaten to pull out of the bailout as a negotiating tactic to force more European debt relief for Greece.
In introducing Ms Lagarde at the Frankfurt event, Mr Jens Weidmann, who sits on the European Central Bank's decision-making body and is head of Germany's Bundesbank, said the IMF was "an essential component" in any euro zone rescue programme.
Among other sources of uncertainty in the global economy, Ms Lagarde listed Britain's debate over remaining in the European Union.
REUTERS, AGENCE FRANCE-PRESSE