IMF Chief Christine Lagarde says Ukraine crisis can derail global economic recovery

The IMF managing director was speaking at John Hopkins University, a week before the IMF's spring meeting in Washington D.C.
By Ananth Baliga   |   April 2, 2014 at 4:32 PM  |  Updated April 3, 2014 at 5:17 PM   |   Comments

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WASHINGTON, April 2 (UPI) -- IMF chief Christine Lagarde said Russia's standoff with the U.S. and E.U. poses a threat to the global economy, which is still weak and growing slowly.

Lagarde was speaking at Johns Hopkins University, in advance of the International Monetary Fund and World Bank's spring meeting next week in Washington. She said that the political instability and tensions coupled with ultra-low inflation in developed countries and instability in developing markets could destabilize the global economic recovery.

“The situation in Ukraine is one which, if not well managed, could have broader spillover implications,” Lagarde said.

The managing director of the IMF said that tension in Ukraine and other parts of the world "requires not only good policies, but good politics. Both are essential to enable the global economy to move into a higher gear."

"The global economy is turning the corner of the Great Recession, though overall growth remains too slow and weak," she added.

Lagarde said the IMF expects global growth in 2014 and 2015 to be a little better than last year's 3 percent, and that she was encouraged by strong growth projections in the U.S.

The euro zone's low inflation could reduce demand, output and suppress growth and jobs. Lagarde advocated the use of "unconventional measures" to jolt the economy.

“There is the emerging risk of what I call ‘low-flation,’ particularly in the euro area,” which could suppress demand and output, Lagarde said. “More monetary easing, including through unconventional measures, is needed in the” 18-country euro region “to raise the prospects of achieving the European Central Bank’s price-stability objective.”

Lagarde also said that ever since the Fed announced a pullback of its bond buying program, investors have been pulling out their investments from emerging markets, causing a chain reaction. She said that central banks should cooperate and communicate more clearly to limit such "spillover" effects.

[Bloomberg Businessweek]

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