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News : Global Economy Last Updated: Jul 9, 2014 - 7:51 AM

IMF's Lagarde says global "recovery remains modest and fragile"
By Michael Hennigan, Finfacts founder and editor
Jul 7, 2014 - 6:21 AM

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Christine Lagarde, International Monetary Fund (IMF) managing director, on Sunday said in a speech at the Le Cercle des Economistes' Rencontres Economiques d’Aix-en-Provence economics symposium in her homeland, France, that the global "recovery remains modest and fragile."

She quoted Marcel Pagnol (1895 – 1974), the French novelist, playwright, and filmmaker, who famously said: “The reason people find it so hard to be happy is that they always see the past better than it was, the present worse than it is, and the future more complicated than it will be,” and hinted that the Fund will revise down its forecast of global growth this year despite a pickup in the US economy.

The IMF chief said: "The crisis was deep and long. It left behind long-lasting scars that still need to heal. At the height of the crisis, bold responses by policymakers helped prop up activity by sustaining demand. Yet, more than five years into the crisis, the fragility of the ongoing recovery points to a role for supply side policies to support stronger growth."

She added: “The global economy is gathering speed, though the pace may be a bit less than we previously predicted because the growth potential is lower and investment” spending remains lacklustre.

Countries such as the US, UK and Germany have infrastructure deficits and while "the sustainability of public finances should be one of the necessary conditions before taking such decisions," public investment could stimulate growth, which would stabilise or even reduce debt levels relative to gross domestic product.

Lagarde said: "According to the World Economic Forum, global spending on basic infrastructure—transport, power, water and communications—currently amounts to US$2.7tn a year when it ought to be US$3.7tn. The US$1tn gap is almost as big as South Korea’s GDP. These are huge numbers.

Fiscal policy can certainly help. If appropriately designed, it can support long-run growth potential, including by enhancing infrastructure investment."

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