Do not relax, IMF chief Christine Lagarde tells world leaders on economic recovery

Davos:  In order to keep up the recovery momentum in the world economy, International Monetary Fund chief Christine Lagarde today asked countries and their leaders to follow the 'do not relax' principle and not let complacency come into their efforts.

"I will pursue with 'do not relax' principle. The forecast is for a very fragile recovery in 2013 and that is why I will emphasise on do not relax," Ms Lagarde said here at the World Economic Forum (WEF) Annual Meeting.

Speaking at a session on the global economic outlook, she said central banks across the world have taken some tough decisions in the recent past and some political leaders are also doing their part on recovery process.

"Some difficult decisions are still due in the US and Europe. The competitiveness of Eurozone has to be there," she said, adding that growth has certainly picked up in the US.

"For emerging economies, particularly China, re-balancing the business model towards more domestic and more consumption-oriented and less export-focused is going to be there," the IMF managing director said.

The panelists noted that the recovery process has only begun and was far from over. In emerging countries like China, growth rate has come down, while others like India were under performing, they added.

Yi Gang, Deputy Governor of People's Bank of China, said that after seven quarters of slow expansion, his country's growth rate went up in the last quarter.

China is looking forward to a growth rate of 8 per cent, which is also the IMF growth forecast for China, he added.

"This year our CPI inflation is expected at 3 per cent, or may be little bit over that. I think the growth of China is now mainly driven by domestic demand, the household income has gone up and the growth rate of income has been much more than that of GDP. The growth of consumption has also been very robust in recent years and the urbanisation process is also going up," Mr Gang said.

He said that the international environment, especially quantitative easing, will have significant impact globally.

Angel Gurria, Secretary General of OECD, said that it was wrong to feel relieved just because the crisis has been overcome.

"What are we relieved about? Are we relieved about exhausting our monetary measures and all other measures. In fact, we should be worried about the current scenario when we have exhausted all our tools. There are issues concerning education, jobs, women, infrastructure building etc, which need to be tackled," he said.

Trevor Manuel, Minister of the National Planning Commission of South Africa, said IMF has forecast 5.7 per cent growth for South Africa, which is pretty good in current circumstances. However, the situation in S Africa is pretty strong at the moment and the country is discussing stronger regional cooperation within the continent, he said. 

Asked about steps being taken by countries, Ms Lagarde said: "We at IMF do believe that there has to be some degree of fiscal consolidation in advanced economies. We also believe that the fiscal consolidation has to be at a right pace.

"In the US there has been fiscal consolidation for the last few years at a good pace and it should continue further. In Europe, we found that it was unnecessary to go at such a high pace in some of the countries.

"Within Eurozone, we do believe that the pace should not be an accelerated one in some of the countries," she said, while adding that setting structural targets was the right approach to go about it.

Ms Lagarde also said austerity measures in Europe were necessary and the situation was indeed very fragile.

Participating in the debate, Akira Amari, Minister for Economic Revitalization and Minister for Economic and Fiscal Policy of Japan, said that the government was not undermining the independence of central bank and the two act separately.

Disagreeing with OECD's Angel Gurria, Mark J Carney, Governor of the Bank of Canada, said the monetary policy options have not maxed out and the available options continue to be there before central banks in all major economies.

On decoupling of emerging economies, Mr Gang said that a globalisation is there in the whole world and developing economies are getting more and more connected and therefore a total decoupling is not possible. Even in countries like China there is very strong domestic demand, he added.

Lagarde said, "We need to be careful about the issue of decoupling in general. Each and every country is different from the other."

On Europe, she said that structural reforms do take time and the steps taken in Europe would take time to deliver results, while adding that the countries would need to keep in mind both short term and long term goals.


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