Strong headwinds from weak investment, substantial debt burdens and high unemployment are preventing a pickup in global economic growth despite a strengthening U.S. recovery and tumbling oil prices, International Monetary Fund Managing Director Christine Lagarde said.
A healthier U.S. and cheaper energy “won’t suffice to actually accelerate the growth or the potential for growth in the rest of the world,” the head of the emergency lender to nations said in a speech Thursday at the Council on Foreign Relations in Washington.
“If the global economy is weak, on its knees, it’s not going to help,” said Ms. Lagarde in remarks previewing the IMF’s latest forecasts for the global economy due out on Monday.
The eurozone, at risk of a third recession in six years, continues to struggle with the fallout from the 2008 financial crisis. Japan is also mired in low inflation, high debt and anemic growth. And output in many major emerging markets—economies that have provided most of the gas for global growth over the last decade—is slowing faster than expected.
Nonetheless, the IMF is upgrading its forecast for economic output in the U.S., one of the few advanced economies bucking the weak global-growth trend. But the world’s biggest economy and a shot in the arm from cheaper gasoline aren’t cures for deep-seated weakness elsewhere, Ms. Lagarde said.
“Too many companies and households keep cutting back on investment and consumption today because they are concerned about growth tomorrow,” she said.
Both Europe and Japan are at risk from a much longer period of excessively low inflation and anemic growth, the former French finance minister said.
Years of stagnation in two of the world’s biggest economies also threaten to drag down global growth. That would make it even harder for those economies to cut their dangerously high debt levels and raise employment, two persistent legacies of the financial crisis.
The Bank of Japan has expanded its cash injections to help spur growth, while European Central Bank officials have signaled plans for a new bond-buying program that could be announced as soon as next week.
Full article: IMF Chief Says Global Economy Faces ‘Very Strong’ Headwinds (Wall Street Journal)