Christine Lagarde.  Picture: EPA/LUKE MACGREGOR
Christine Lagarde. Picture: EPA/LUKE MACGREGOR

Hong Kong/Washington — The world economy is enjoying a recovery that spans three-quarters of global output. Trade volumes have rebounded and unemployment is falling. But the best may be still to come.

That is the message from finance ministers and central bankers gathered in Washington on Thursday for the start of annual meetings of the World Bank and International Monetary Fund, where they expressed an increasingly upbeat outlook for their economies.

“It’s going to get better,” IMF MD Christine Lagarde said on a panel debate moderated by CNN anchor Richard Quest.

She spoke two days after the fund lifted its global growth outlook on improved forecasts for the world’s biggest economies.

Unlike last year, when emerging markets drove gains, the current upswing was more balanced, she said. “It is broader-based, it is more solid and it should get better. But it needs to get sustainable and benefit all.”

Officials from around the globe largely shared her optimism.

“I am pleased to note that there have been signs lately that a sustainable global recovery may finally be materialising,” said US Federal Reserve governor Jerome Powell, who is a potential candidate to run the central bank when chairwoman Janet Yellen’s term ends in February. “This is certainly good news, although significant risks and uncertainties remain.”

Caution

Powell’s words of caution echoed warnings from other policy makers throughout the day that painful reforms are still needed to defuse political tensions and ensure the recovery lasts.

Some of the world’s leading central bank chiefs said more work needed to be done.

Bank of Japan governor Haruhiko Kuroda told reporters he would keep up a massive stimulus programme to hit a 2% inflation goal, and European Central Bank (ECB) president Mario Draghi said although there were some signs that wages were finally increasing, “we’re still not there”.

There is also concern that not everyone is sharing in the global upswing.

“It is not inclusive enough,” Indonesian Finance Minister Sri Mulyani Indrawati said.

Citing the British poet Percy Bysshe Shelley, Lagarde said there was a “degree of harmony” in global growth, before cautioning that a lack of economic reforms amid growing technological and other disruptions are limiting aspirations.

In meetings this week, the IMF is pushing policies that include investment in education, a strengthening of safety nets and infrastructure spending.

“Our goal is turning that harmony we see into a season of action,” she told reporters earlier on Thursday in Washington. “The recovery is not complete.”

Threats include the risk of volatile capital markets and tighter financial conditions with consequences for spillover around the globe.

Lagarde advocated against protectionism that could disrupt a revival in global commerce.

“This pickup in trade that we see is good for growth, and we need to secure it and make sure it continues to be so,” she said. “Trying to reduce trade would not be helpful for that roof we want to fix.”

While policy makers pushed back against calls for higher tariffs or protectionism, they also said domestic policies needed to deliver benefits to those who felt left out of the global recovery.

“We can’t divorce our domestic policy from our goal of having a more open and transparent trading system,” said Canadian Finance Minister William Morneau, whose country is engaged in talks this week to renegotiate the North American Free Trade Agreement (Nafta) with the US and Mexico.

“If people believe that trade is not going to necessarily advantage them, then why are they going to buy into it?”

Bloomberg

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