World Economy Needs Low Interest Rates

The world economy is the healthiest it’s been in years but could still use a little help from low-interest rates and higher government spending from countries that can afford it, the International Monetary Fund says.

“There was a strong consensus that the global outlook is strengthening,” said Agustin Carstens, governor of the Bank of Mexico and outgoing chair of the IMF’s policy committee. “This does not mean we are declaring victory just yet,” AP reported.

The 189-member IMF and its sister agency, the World Bank, wrapped up three days of meetings in Washington late Saturday. The IMF expects the global economy to grow 3.6% this year, up from 3.2% in 2016. And three-quarters of the global economy is growing, making this the broadest recovery in a decade.

But IMF and World Bank officials pointed to risks that could derail global growth. Geopolitical risks are rising, including a confrontation between the United States and North Korea over Pyongyang’s nuclear weapons program. The income gap between rich and poor is growing, fueling political discontent with the free trade and global cooperation that the IMF and World Bank promote.

So in a communiqué Saturday, the IMF’s policy committee called on world central banks to protect the fragile global recovery by keeping interest rates down in countries where inflation is too low and economies are performing below potential.

IMF officials have also urged some countries with healthy finances—such as Germany and South Korea—to make investments that will spur growth.

IMF Managing Director Christine Lagarde appealed to countries to enact reforms that will make their economies more efficient and spread prosperity to those who have been left behind. Specifically, Lagarde argued that countries could improve their economies and reduce inequality by putting more women to work, improving their access to credit and narrowing their pay gap with men.

Meanwhile, global finance leaders appealed to central bankers to stick as long as possible with low-interest rate policies that have made borrowing attractive and helped safeguard an improving but still fragile world economic recovery.

Declaring the “recovery is not complete” even eight years after the 2008 financial crisis, the 189-nation International Monetary Fund wrapped up its fall meetings with a communiqué warning “there is no room for complacency” as nations confront new challenges to global growth from a range of threats, including cyber security attacks and more violent weather patterns linked to climate change.

The meetings also dealt, at least on the sidelines, with efforts to better understand the policy implications of the Trump administration’s more forceful “America First” agenda.