World

Thursday 31 July 2014

IMF sees signs of global recovery

Nick Edwards in Beijing

Published 19/03/2012|05:00

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Christine Lagarde at a news conference after attending the China Development Forum 2012 in Beijing yesterday

The global economy has stepped back from the brink of danger and signs of stabilisation are emerging from the eurozone and the United States, the IMF said yesterday.

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However, high debt levels in developed markets and rising oil prices are key risks to any sustained recovery.

"The global economy may be on a path to recovery, but there is not a great deal of room for manoeuvre and no room for policy mistakes," IMF managing director Christine Lagarde said in a speech in Beijing.

In a separate talk, Ms Lagarde said that China's yuan could become a reserve currency in the future, adding that the country needed a roadmap for a stronger, more flexible exchange rate system.

She said signs of stabilisation were emerging to show that policy actions taken in the wake of the global financial crisis were paying off, that US economic indicators were looking a little more upbeat and that Europe had taken an important step forward in solving its crisis with the latest efforts on Greece.

"On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic.

"Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront," Ms Lagarde said.

The IMF chief cited still-fragile financial systems burdened by high public and private debt as the first of three major risks.

"Second, the rising price of oil is becoming a threat to global growth. And, third, there is a growing risk that activity in emerging economies will slow over the medium term," she said.

Unemployment

Ms Lagarde also said youth unemployment should be tackled and that all countries must persevere with their policy efforts if the progress made in stabilising the global economy was to pay off with better prospects ahead.

She said advanced economies must continue with macroeconomic support and a balanced fiscal policy, together with financial-sector reforms and structural and institutional reforms to repair the damage done by the crisis and to improve competitiveness.

Meanwhile, emerging market economies needed to calibrate macroeconomic policies, both to guard against fallout from the advanced economies as well as to keep overheating pressures in check.

Ms Lagarde's comments on the yuan as a reserve currency were the most direct endorsement to date by an IMF official of China's ambitions for its currency.

"What is needed is a roadmap with a stronger and more flexible exchange rate, more effective liquidity and monetary management, with higher quality supervision and regulation, with a more well developed financial market, with flexible deposit and lending rates, and finally with the opening up of the capital account," she told a gathering of leading Chinese policymakers and global business leaders.

China operates a closed capital account system and its yuan currency is tightly controlled, although Beijing has said it wants to increase the international use of the yuan to settle cross-border trade.

Ms Lagarde said China showed leadership and adept policy skills when the global financial crisis exploded.

China unveiled a massive four trillion yuan (€480bn) stimulus package for its economy at the end of 2008 as the financial crisis reverberated around the world, and global trade shuddered to a standstill.

Ms Lagarde further praised what she said was China's leadership and influence in global institutions, such as the IMF and G20 group of the world's 20 biggest economies.

"China has been instrumental in helping to make the global economic system less prone to damaging crises," she added.

Irish Independent

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