IMF Chief Christine Lagarde Hints At Coming Downward Revision In World Economic Outlook

Christine Lagarde and Janet Yellen-July 2, 2014
International Monetary Fund Managing Director Christine Lagarde, left, applauds U.S. Federal Reserve Board Chair Janet Yellen after their question-and-answer session at the inaugural Michel Camdessus Central Banking Lecture in Washington Wednesday.

The International Monetary Fund appears to believe economic momentum has slackened since the publication of its latest “World Economic Outlook” report in April, based on comments made by IMF Managing Director Christine Lagarde in a speech at the annual Davos in Provence meeting in France Sunday.

“We are seeing global activity pick up, but the momentum could be less robust than expected because potential growth is weaker [and] investment remains lackluster,” Lagarde was quoted as saying by Agence France-Presse. In its most recent “WEO” report, the IMF forecast global growth could rise from 3 percent in 2013 to 3.6 percent in 2014 to 3.9 percent in 2015. Its chief apparently did not indicate in her speech the size of the hinted downward revision(s) in her organization’s overall projections.

However, Lagarde did estimate China’s economic growth would be between 7 percent and 7.5 percent this year, according to Reuters. In April, the IMF’s comparable figure was 7.5 percent, which would suggest its outlook for the world’s second-largest economy has darkened by as much as 50 basis points since then.

“Despite the many responses to the [global financial] crisis … recovery is modest, laborious, fragile -- and measures to boost demand, despite the goodwill of central banks, will find their limits,” Lagarde said at the meeting in Aix-en-Provence. “We must therefore take steps to boost efforts to strengthen growth.”

Acknowledging the need in a number of countries to relaunch their investments, Lagarde warned it should be done “without threatening the viability of public finances.” She was clear that increased public investments were currently options not for all nations but for some of them, Reuters reported.

In the U.S., she indicated, growth should accelerate as long as the Federal Reserve’s move from looser to tighter monetary policy is orderly and there is a precise intermediate-term budget framework.

In the euro area, she suggested, the 18-member bloc is slowly coming out of recession and it is crucial that those countries continue to carry out reforms, including completing the banking union.

The IMF could promulgate the next update of its global economic outlook as soon as this month.

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