Cooperation needed to go through the transitions: IMF
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International Monetary Fund (IMF) chief reiterated the urge for the US fiscal house to be put in order, one of the elements needed to bring the global economy back to good health.
"Obviously we know and you know by now that failure to raise the debt ceiling would cause serious damage to the US economy, but also to the global economy as a result of the spillover effects," managing director Christine Lagarde said at the October 10 press conference of the 2013 Annual Meetings of the IMF and the World Bank.
In her welcome speech, the global economy is passing the recession and it is now in the transition period which needs careful and fully-cooperated policies.
In the Capital Hill yesterday, House Republican leaders proposed a six-week increase in the nation's US$16.7 trillion debt ceiling as a way of avoiding a first-ever US default.
Aside from a deal on the debt ceiling, Lagarde said it is critical for the US that the exit from highly accommodative monetary policy be carefully managed.
"Those transitions have to be addressed and managed very carefully, and they have to be addressed in cooperation. And certainly there is one thing that we advocate strongly is that those solutions be as country-specific as they can, put that there be as much cooperation as is possible," she said.
Meanwhile, the euro area needs to finish cleaning up its banks, forge ahead with banking union and break down some of the barriers that are still an obstacle to growth and job creation, particularly in the product and service market, but also in the labor market for some of them.
The emerging market economies need to navigate any short-term financial turbulence as smoothly as possible.
"There will be turbulence as a result of tapering. And that they have to remove the structural impediments to their medium-term growth and that is a different picture depending on the country," she said.
The IMF also released the World Economic Outlook. It revised down the global growth forecast to 2.9 per cent, of which 4.5 percent for the emerging market and developing economies, and 1.2 percent for the advanced economies.
"2014 looks a little bit better in our forecast with anywhere between 0.5 and 0.7 percent up from this year, but this 2013 forecast of ours clearly indicates that there is recovery, but that it is slow and that it is unbalanced," she said.
