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Lagarde says China is rightly rebalancing from manufacturing to services, from investment to consumption, and from exports to domestic services.
Lagarde says China is rightly rebalancing from manufacturing to services, from investment to consumption, and from exports to domestic services.

IMF Says Global Growth Too Low for Too Long

Low productivity growth and high levels of debt could further depress investment and expectations of future demand

IMF Says Global Growth Too Low for Too Long

The world continues to face the problem of global growth being too low for too long, benefiting too few, according to Christine Lagarde, Managing Director of the International Monetary Fund.
“For the past several years, the global recovery has been weak and fragile, and this continues to be the case today. Especially for advanced economies—while there are some good signs—the overall growth outlook still remains subdued,” CFO Innovation quoted Lagarde as saying Sunday.
The US economy has been recovering for some time but had a setback in the first half of 2016, which will lead to a downgrade in our US forecast. However, news on the employment front has been relatively good, and there are hopeful signs of falling poverty and rising median incomes in 2015.
In the eurozone, growth remains subpar, although economic activity is now holding up under strain from high debt and weaknesses among a number of banks.
Japan also has seen a small rebound, but it will need to implement difficult reforms to maintain momentum.
Guarded Optimism
“The prospects of the emerging and developing economies merit some guarded optimism. After driving the global recovery since the 2008 financial crisis, these countries will continue to contribute more than three-quarters of total global growth this year and next,” says Lagarde.
Lagarde noted that China is rightly rebalancing from manufacturing to services, from investment to consumption, and from exports to domestic services—which should produce a more sustainable, albeit slower growing economic model. Even so, it will continue to grow at a robust rate of about 6%.
“So too will India, which is also embarking on significant reforms, at more than 7%,” says Lagarde.
Moreover, Russia and Brazil are showing some signs of improvement after a period of severe contraction, she said.
While the IMF has revised upwards its short-term forecasts for the UK economy, it remains convinced that the long-term impact will be negative, particularly if Prime Minister Theresa May’s government makes control of migration a higher priority than continued access to the single market.
Lagarde said she will urge the Bank of England and the treasury to continue providing stimulus to the economy, with a warning that there could be fresh turbulence for both the UK and the rest of the EU when, with the triggering of article 50, divorce proceedings eventually start.
Protectionism  
“Even around modest recovery, there is considerable uncertainty. Diverging paths of monetary policy in the major economies could trigger a resurgence of financial market volatility,” says Lagarde.
She notes that low productivity growth and high levels of debt could further depress investment and expectations of future demand. And, of course, geopolitical events such as terrorism and the related refugee surge pose risks that are very hard to quantify, let alone mitigate.
Citing trade as an example, Lagarde says "if we were to turn our backs on trade now, we would be choking off a key driver of growth" at a point when the global economy is still in need of every good piece of news it can get.
“So we must reverse the trend toward protectionism and restore a climate that supports a rebound in trade—by completing multilateral trade agreements and pushing forward reforms in services and other areas of the "new economy" such as regulatory cooperation and intellectual property rights.
“At the same time, of course, the challenge is to make sure that the gains from trade are widely shared, and that those at risk of losing out are being supported.”
On boosting growth, Lagarde suggested that “Stronger, better growth is possible and will facilitate inclusion. By using monetary, fiscal, and structural policies in concert—within countries, across them, and consistent over time—we can make the whole greater than the sum of the parts.”

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