IMF chief cautiously upbeat on global economy

AFP, Sunday 18 Mar 2012

Policy decision taken by Europe are paying off and helping bring the world economy back from the brink, says Lagarde

IMF chief Christine Lagarde said Sunday measures taken to fight financial woes in Europe and the US were starting to pay off, in a cautiously upbeat assessment of the global economy.

But Lagarde -- in Beijing for a two-day trip to attend a high profile forum on China's development and hold meetings with her economic counterparts -- also warned that "major" vulnerabilities still remained.
"Even just a few months ago, the situation was decidedly gloomy. Indicators for the last quarter of 2011 -- namely for Europe and the United States -- did not provide much reassurance," Lagarde said in a speech at the forum.
"Yet, today, we are seeing signs of stabilisation; signs that policy actions are paying off.
"Financial-market conditions are more comfortable and recent economic indicators are beginning to look a little more upbeat, including in the United States."
Europe -- China's top export market -- has been hit by a severe debt crisis that has seen a wave of credit-rating downgrades and brought Greece to the brink of bankruptcy, sparking concern across the world.
But Lagarde said some of the policy actions taken -- particularly by the European Central Bank and some European countries -- had helped stabilise the overall situation.
Most EU nations agreed in January to a treaty that will require governments to introduce laws on balanced budgets and impose near-automatic sanctions on countries that violate deficit rules.
And the looming threat of a Greek default has receded after most of the country's private creditors agreed to a bond swap that will see them accept huge losses and wipe some 100 billion euros ($132 billion) off Athens' debt.
The International Monetary Fund (IMF) also approved a new 28-billion-euro loan for Greece on Thursday, as part of the European Union's bailout plan for the debt-riddled country.
"On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic," Lagarde said.
In the United States, meanwhile, the economy has shown signs of improvement with better consumer and business spending and an improved job market, even if there is still high unemployment and a depressed housing sector.
But Lagarde warned there were still major vulnerabilities, with public and private debt still high in many advanced economies, oil prices rising, and the risk of slowing activity in emerging nations.
"The recovery will be a marathon, and not a sprint," she said.
Lagarde praised China for its "leadership and adept policy skills" in the global financial crisis, but said it should continue to move away from its dependency on exports and investment, and focus more on domestic consumption.
Speaking after Lagarde, Vice Premier Li Keqiang -- who is widely touted to replace current Premier Wen Jiabao next year -- also emphasised the need to rebalance Chinese growth towards domestic demand.
China needs to "use welfare projects as another cornerstone of growth", he said.
Angel Gurria, OECD secretary general, concurred, saying more social expenditure in China would be good for growth.
If people feel "they're having health, education, infrastructure, they're having housing facilities available... there will be a higher propensity to spend and less to save," he said.
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