World economies warn of global risks, call for bold action

World economies warn of global risks, call for bold action

World economies warn of global risks, call for bold action

IMF Managing Director Christine Lagarde is seen with International Monetary and Financial Committe Chair Tharman Shanmugaratnam.

The International Monetary Fund’s member countries said bold action was needed to bolster the global economic recovery and they urged governments not to squelch growth by tightening budgets too drastically, although Germany poured cold water on the idea of a new global “crisis.”

With Japan’s economy floundering, the euro zone at risk of recession and even China’s expansion slowing, the IMF’s steering committee said focusing on growth was the priority.

“A number of countries face the prospect of low or slowing growth, with unemployment remaining unacceptably high,” the International Monetary and Financial Committee said on behalf of the Fund’s 188 member countries.

The Fund this week cut its 2014 global growth forecast to 3.3 percent from 3.4 percent, the third reduction this year as the prospects for a sustainable recovery from the 2007-2009 global financial crisis have ebbed, despite hefty injections of cash by the world’s central banks.

The IMF has flagged Europe as the top concern, a sentiment echoed by many policymakers, economists and investors gathered in Washington for the Fund’s fall meetings.

European officials sought to dispel the gloom. European Central Bank President Mario Draghi said the drag from fiscal tightening in the euro zone was set to fade, while German Finance Minister Wolfgang Schaeubledownplayed the idea that the region’s largest economy was at risk of recession.

“There is no reason to talk about a crisis in the global economy,” Schaeuble said.

The IMF committee called for fiscal policy flexibility, but efforts to provide more room for France to meet its European Union deficit target looked set to founder on Germany’s insistence that the agreement on fiscal rectitude was set in stone and that the bloc would not be writing any new checks.

The United States has been a relative bright spot in the otherwise darkening global economic picture, and investors have rushed into dollars as a result.

Still, while U.S. growth has picked up, soft inflation and wage growth suggest the slowest-ever postwar recovery is not delivering a sustained boost to demand, and concerns are growing that the global slowdown will undercut the U.S. economy as well.

Top officials from the U.S. Federal Reserve highlighted growing risks, with the central bank’s No. 2 saying the global slowdown could delay plans for a U.S. interest rate hike.