20 C
June 13, 2021

IMF’s Lagarde: Global economy may be entering ‘softer patch’

There are “somber trends” developing in the global economy with recent data showing a potential slowdown in growth, the head of the International Monetary Fund (IMF) said recently at a Brookings Institution event, Wall Street Journal informs.
IMF Managing Director Christine Lagarde said the fund isn’t planning to immediately change its forecast for the global economy to grow at 3.3% this year. However, she said that “downside risks to growth remain as prominent as ever.” “So we could be entering a softer patch,” Lagarde said. “This only reinforces my core message – making policies stronger to stop the global economy getting weaker,” she said.
Lagarde said the IMF would likely downgrade its forecast for a 0.3% euro-zone contraction this year, after cutting estimates this week for two of the region’s largest economies, Germany and France. Despite the major steps authorities have taken to fix their financial crisis, “the euro-area economy is still stuck in low gear,” she said. “Going forward, the indicators are not especially encouraging,” the IMF chief said, pointing in particular to the credit problems that continue to hold back growth for small to medium-sized firms. “This weakness combined with lingering uncertainty over the euro-area outlook and the evolution of the euro-area institutions is draining momentum even from countries like Germany and France,” she said.
While applauding new currency-wide banking supervision, Lagarde said euro-zone authorities must take a page from the U.S. response to its financial crisis and “sanitize” its banking system. The European Central Bank has begun drafting plans to assess banks’ balance sheets to help loosen lenders’ purse strings. Constriction in the supply of cash to markets, particularly to small- to medium-sized companies, is choking off the growth the euro zone desperately needs to claw its way out of a severe recession.
Beyond the euro zone, however, there are other drags on global growth that could force the IMF to downgrade its growth outlook for the year. Last week, for example, the IMF cut its output estimate for one of the major drivers of global growth, China, by a quarter percentage point.
“Investment prospects also look less bright in key markets like Brazil, India, Russia and South Africa,” Lagarde said. Those nations must do a better job of fixing domestic economic weaknesses and protecting against dangerous capital outflows that could come as the U.S. eventually exits from its extraordinary monetary policy.
And although the U.S. has made great strides in repairing its own economy since the 2008 financial crisis, the U.S. isn’t growing as fast as it should, “largely because of self-inflicted wounds,” the managing director said. Cuts in the government budget are too severe in the near term and are dramatic enough in the longer term, curbing growth prospects and investor confidence.

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