Imf: Still There Are Significant Risks To Fragile Global Recovery

- Low oil prices and low interest rates might support recovery after the crisis, but still, there were significant risks to the fragile global recovery, IMF Chief Christine Lagarde said on Monday.

"More than six years after the global financial crisis, the recovery remains too slow, too brittle, and too lopsided" Lagarde, Managing Director, International Monetary Fund told conference in New Delhi, India. "We have pared down our forecasts of global growth since last October, despite the boost from cheaper oil and stronger U.S. growth. And while the global economy is expected to grow by 3.5 percent this year, and 3.7 percent next year, this is still below what could have been expected after such a crisis."

She said the first risk was "asynchronous monetary policy" in advanced economies, described as, normalizing monetary policy in the United States and the United Kingdom while Japan and the Euro Area were increasing monetary stimulus. "Even if this process is well managed, it may result in excessive volatility in financial markets" she stated.

"The second risk is that the Euro Area and Japan could remain stuck in a 'low growth-low inflation' gear for a prolonged period. This would make it harder for countries to reduce unemployment and excessive public and private debt, and raise the risk of recession and deflationary pressures around the globe."

The third risk was that emerging and developing economies could face a triple hit of a stronger dollar, higher global interest rates and more volatile capital flows. A stronger dollar would have a significant impact on financial systems in emerging markets, due to many banks and companies had increased their borrowing in dollars over the past five years.

Growth and job-friendly fiscal adjustment and structural reforms were critical to lift employment and growth in countries all over the world, she said. "For example, the drop in oil prices provides a golden opportunity to cut energy subsidies, which generally favor the middle class, and use the savings for more targeted cash transfer systems to protect the poor."

(PHOTO)

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