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Global growth risk rising, says Lagarde

Less than a week before the Washington-based fund releases its new global growth forecasts, Lagarde said momentum in the second half of last year should strengthen in 2014 as developed economies gain pace. While the fund plans to raise its forecast for the global economic expansion on January 21, it remains below potential of about four per cent, she said.

Central banks in the US, Japan and the euro area face inflation levels under their targets while trying to accelerate growth with policies including benchmark interest rates near zero and bond-buying programmes. Lagarde said that while “the deep freeze is behind,” world growth remains “too low, too fragile and too uneven,” with some 200 million people needing employment.

“The world could create more jobs before we would need to worry about the global inflation genie coming out of its bottle,” Lagarde said in a speech at the National Press Club in Washington on Thursday. “With inflation running below many central banks’ targets, we see rising risks of deflation, which could prove disastrous for the recovery.”

“If inflation is the genie, then deflation is the ogre that must be fought decisively,” she said.

Lagarde’s call for the leading economies to act to prevent a prolonged, broad decline in prices was her most pointed warning on the subject in speeches delivered since she became IMF chief in July 2011.