IMF Chief Says Global Recovery Faces Strong Headwind

Global recovery faces strong headwind despite lower oil prices and higher growth in the United States, International Monetary Fund Managing Director Christine Lagarde said late Thursday.

The world growth is still too low, too brittle, and too lopsided, she told the Council on Foreign Relations in Washington. The IMF is set to publish its global growth forecasts next week.

Lagarde said the year 2015 must be the "year of action" when policymakers redouble their efforts to tackle deep-seated economic weaknesses and show greater political leadership on infrastructure investment, trade agreements, and climate change.

She explained three major policy challenges for the global economy in 2015 that require decisive actions, namely boosting growth and employment; achieving more inclusive and shared growth; and attaining more sustainable, balanced growth.

The fall in oil prices is a welcome shot to boost consumers' purchasing power in oil importing countries. By contrast, oil exporters need to cushion the shock on their economies, she noted.

Lagarde expects the U.S. economy to strengthen further this year largely due to more robust household spending. But she cautioned that lower oil prices and U.S. growth are not a cure for deep-seated weaknesses.

"Too many companies and households keep cutting back on investment and consumption today because they are concerned about low growth in the future," Lagarde said.

Emerging and developing economies could face a triple hit of a strengthening U.S. dollar, higher global interest rates, and more volatile capital flows.

At the same time, the euro area and Japan could remain stuck in a world of low growth and low inflation for a prolonged period.

In the euro area, cheaper oil increases the risk of deflation and bolsters the case for additional monetary stimulus. But at the same time, it provides a golden opportunity to reduce energy subsidies and use the savings for more targeted transfers to protect the poor, Lagarde noted.

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