Global economy faces 'new mediocre risk' in 2015: IMF

Davos: Terming 2015 as a make or break year, IMF chief Christine Lagarde Saturday said the global economy faces the risk of getting stuck in a 'new mediocre' or a prolonged period of slow growth and feeble job creation.

"At the start of 2015, policymakers around the world are faced with three fundamental choices: to strive for economic growth or accept stagnation; to work to improve stability or risk succumbing to fragility; and to cooperate or go it alone.

"The stakes could not be higher; 2015 promises to be a make-or-break year for the global community," Lagarde wrote on a World Economic Forum (WEF) blog today.

The global economy is facing multiple challenges, including crisis in the euro zone and slowing Chinese economy even as the US is seeing signs of stronger recovery.

Lagarde said growth and jobs are needed to support prosperity and social cohesion in the wake of the Great Recession that began in 2008.

"Six years after the eruption of the financial crisis, the recovery remains weak and uneven. Global growth is projected at just 3.3 per cent in 2014 and 3.8 per cent in 2015.

"Some important economies are still fighting deflation. More than 200 million people are unemployed. The global economy risks getting stuck in a 'new mediocre' - a prolonged period of slow growth and feeble job creation," she said.

Lagarde emphasised on the need to break free from stagnation and said there is a need for renewed policy momentum.

Besides structural reforms, she said that building new momentum would require pulling all possible levers that can support global demand.

"Accommodative monetary policy will remain essential for as long as growth remains anaemic - though we must pay careful attention to potential spillovers.

"Fiscal policy should be focused on promoting growth and creating jobs, while maintaining medium-term credibility. And labour-market policies should continue to emphasise training, affordable childcare, and workplace flexibility," she said.

Referring to the choice between stability and fragility, the IMF chief said one should consider how the increasingly interconnected world can be made a safer place.

Noting that financial integration has risen ten-fold since World War II, she said national economies are so inter- connected that shifts in market sentiment tend to cascade globally.

It is therefore critical that we complete the agenda on financial-sector reform, she said.

"No economy is an island; indeed, the global economy is more integrated than ever before.

"Consider this: Fifty years ago, emerging markets and developing economies accounted for about a quarter of world GDP. Today, they generate half of global income, a share that will continue to rise," Lagarde said.