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No Room for Mistakes  by Central Banks
World Economy

No Room for Mistakes by Central Banks

Central banks have little room for error in a low-growth world in which over-leveraged and commodity-dependent emerging economies and a slowing China are major risks, top international financiers told the International Monetary Fund's meeting. Despite $7 trillion in quantitative easing from banks in industrial nations since the global financial crisis, the world is stuck in a "new mediocre" growth pattern, IMF chief Christine Lagarde said on Thursday, Reuters reported. In a bid to shore up finances and punish companies that arbitrage tax regimes, governments pushed ahead with plans to improve tax collection. The IMF meeting comes as the Bank of Japan looks poised to extend its money printing program, known as quantitative easing, as it stares down the barrel of a fifth year of recession. The European Central Bank is also expected to extend quantitative easing, while the two major central banks closest to raising rates, the US Federal Reserve and the Bank of England, are holding their fire. "It is not the kind of economy in which you can make a mistake," Bank of England Governor Mark Carney told the meeting. For both the Fed and the Bank of England, inflation targets are far out of reach, although both central banks insist they are ready to hike rates. The Fed's chair, Janet Yellen, has said the US central bank is on track to raise rates this year. IMF has urged the Fed and the Japanese and European central banks to wait for more signs of recovery before tightening. Lagarde on Thursday repeated her plea to Yellen to stay her hand. Many emerging markets, once the world's fastest-growing economies which had been expected to shape a new world economic order, are now in turmoil. China's growth is also slowing, although Lagarde was optimistic that the slowdown was manageable. While the world's central banks' money-printing programs have staunched losses in the financial sector, they have failed to reach their goal of boosting global credit. IMF cut its estimate for growth in emerging economies for a fifth successive year this week, citing the collapse of the "commodities supercycle" in which buoyant demand for raw materials had boosted prices. Lagarde repeated the IMF's mantra for structural economic reforms and for those countries with the room to raise spending to do so. However, that appears politically impossible in the euro zone, while in the United States, Congress is deeply divided. The G20 group of leading emerging and developed economies is also pushing at the IMF meeting to move ahead with measures to end a situation that allows multi-national companies such as Apple and Vodafone Group to pay almost no tax on their profits in many jurisdictions. The Organization for Economic Cooperation and Development estimates the amount of money moved by companies into tax havens was $100 billion to $240 billion annually, suggesting tens of billions of dollars in lost tax revenue. That would be a tiny amount relative to the size of budget deficits across the world.

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