5:42am

Tue September 25, 2012
Economy

IMF's Lagarde: Uncertainty Slows Global Recovery

Originally published on Tue September 25, 2012 10:00 am

Managing Director of the International Monetary Fund Christine Lagarde says recent actions by the European Central Bank mark a positive turning point in Europe's financial crisis. But she warned that uncertainty elsewhere will continue to slow the pace of the global recovery.

Back in July, the IMF was forecasting world growth of just under 4 percent for next year. The group's economists will issue a new forecast in a couple of weeks. Lagarde said the new projection still foresees a gradual recovery, but it will shave a few tenths of a percent off global growth.

Lagarde said a number of factors are eroding growth. "At the center of them we clearly see uncertainty — uncertainty about what policymakers can and will deliver on their promises," she said.

But Lagarde, who spoke at the Peterson Institute for International Economics in Washington, D.C., congratulated one set of policymakers. Central bankers, she said, have played a key role. In fact, in recent weeks the central banks of the United States, Japan and the European Union have announced new programs to inject hundreds of billions of dollars into their struggling economies. Lagarde said they were sending big policy signals in the right direction.

"They point the way forward and they create an opportunity to build on what has already been done, an opportunity to make a decisive turn in the crisis," she said.

Lagarde singled out the European Central Bank's unlimited bond buying program announced earlier this month as a turning point in the euro crisis. It's aimed at lowering borrowing costs for countries like Spain and Italy. The ECB announcement clearly calmed the financial markets and drove borrowing costs down dramatically.

Jacob Kirkegaard, a Europe specialist at the Peterson Institute, says surveys show the ECB's big move has helped reduce the threat of the euro crisis on the radar screens of investors.

"In fact, the U.S. fiscal cliff in some of these surveys has now overtaken the euro crisis as sort of the single issue that concerns investors the most," Kirkegaard said.

Lagarde called the fiscal cliff — the massive increase in taxes and spending cuts scheduled for Jan. 1 — a serious threat to the U.S. and the global economies. She said the world hopes political clarity would emerge in the U.S. soon.

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Transcript

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In this global economic crisis it seems like any bit of positive news has a caveat. That was essentially the message from Christine Lagarde. The managing director of the International Monetary Fund says recent actions by the European Central Bank mark a positive turning point. Here's the caveat: She warned that uncertainty elsewhere will continue to slow the pace of global recovery.

NPR's John Ydstie has more.

JOHN YDSTIE, BYLINE: Back in July, the IMF was forecasting world growth of just under 4 percent for next year. The Fund's economists will issue a new forecast in a couple of weeks. Lagarde said the new projection still foresees a gradual recovery, but it will shave a few tenths of a percent off global growth. Lagarde said there are a number of factors eroding growth.

CHRISTINE LAGARDE: At the center of them, clearly we see uncertainty; uncertainty about what policymakers can and will deliver on their promises.

YDSTIE: But Lagarde, who spoke at the Peterson Institute for International Economics, congratulated one set of policymakers. Central bankers, she said, have played a key role. In fact in recent weeks, the central banks of the United States, Japan and the European Union have announced new programs to inject hundreds of billions of dollars into their struggling economies. Lagarde said they were sending big policy signals in the right direction.

LAGARDE: They point the way forward and they create an opportunity to build on what has been done, an opportunity to make a decisive turn in the crisis.

YDSTIE: Lagarde singled out the European Central Bank's unlimited bond buying program, announced earlier this month, as a turning point in the euro crisis. It's aimed at lowering borrowing costs for countries like Spain and Italy. The ECB announcement clearly calmed the financial markets and drove borrowing costs down dramatically.

Jacob Kirkegaard, a Europe specialist at the Peterson Institute, says surveys show the ECB's big move has helped reduce the threat of the euro crisis on the radar screens of investors.

JACOB KIRKEGAARD: In fact, the U.S. fiscal cliff, in some of these surveys, have now overtaken the euro area crisis as the sort of single issue that concerns investors the most.

YDSTIE: Lagarde called the fiscal cliff, the massive increase in taxes and spending cuts scheduled for January 1st, a serious threat to the United States and the global economy. She said the world hoped political clarity would emerge in the U.S. soon.

John Ydstie, NPR News, Washington. Transcript provided by NPR, Copyright NPR.