IMF sees global growth, deflation risks rising

Posted at 01/16/2014 7:24 AM

WASHINGTON - lnternational Monetary Fund chief Christine Lagarde said Wednesday that growth in the global economy was picking up, but warned of the "rising risks" of deflation.

"Momentum strengthened in the latter half of 2013, and should strengthen further in 2014 -- largely due to improvements in the advanced economies," Lagarde said in a speech at the National Press Club in Washington.

The IMF managing director, however, declined to put numbers on the growth rate ahead of next week's update of the Fund's official forecasts.

But she pointed out that global growth, five years after the financial crisis, remains below its potential of about four percent a year, resulting in a tame risk of inflation worldwide.

"With inflation running below many central banks' targets, we see rising risks of deflation, which could prove disastrous for the recovery," she said.

"Global growth is still too low, too fragile, and too uneven."

Lagarde stressed that the 188-nation IMF can play "an especially valuable role" in fostering cooperation and coordination in the interconnected world.

"We need to continue to adapt and to reflect the changing dynamics of the global economy and our membership. That is why we need the continued support of our entire membership," she said, stressing the word "entire".

Lagarde was peppered with questions from the audience about the US Congress's exclusion of an IMF funding measure that had been proposed by the Obama administration in a budget compromise reached late Monday.

Without the funding measure, the United States, the IMF's largest stakeholder, will continue to block key IMF quota and governance reforms approved in 2010.

The reform includes doubling the IMF's quotas, increasing its crisis-lending capacity; giving more voice to underrepresented dynamic emerging-market countries; and reducing the European representation on the executive board.

Lagarde said she hoped that Congress's decision is "a question of timing and not a question of a determination to exclude the IMF."

She argued that the Washington-based IMF is a positive force in the global economy, promoting financial stability, and the United States, the world's largest economy, benefits from that.

The commitment to complete the reform was by the end of 2012, and two years later its prospects remain unclear as vital US support is lacking.

"I hope that sensible and commonsense judgment will prevail," she said.

"As a lead economy, as the key partner at the table, the United States of America are bound to support the institution."