Wednesday, April 02 16:32:43
The European Central Bank should ease monetary policy to combat the risk of "low-flation" that could crimp euro zone output and consumer spending, the head of the International Monetary Fund said today.
IMF Managing Director Christine Lagarde said the world's economy should pick up pace above 3 percent this year and next. She warned, however, that the recovery from the global financial crisis remained weak and that a prolonged period of sluggish growth was a risk.
She cited slow price growth in the euro zone, geopolitical tensions in places like Ukraine, and market volatility as factors that could drag on growth in the short-term.
"In 2013, global growth was about 3 percent; we project modest improvements in 2014 and 2015, although still remaining below past trends," Lagarde said in remarks prepared for delivery at the Johns Hopkins School of Advanced International Studies.
"The risk is that without sufficient policy ambition, the world could fall into a medium-term low growth trap," she said.
She ramped up her warnings about the low level of inflation in the euro zone, and issued a direct call for action from the ECB, which holds its policy meeting on Thursday.
"More monetary easing, including through unconventional measures, is needed in the euro area," she said in her speech, which outlines IMF policy recommendations ahead of its spring meetings next week.
"The Bank of Japan should also persist with its quantitative easing policy," Lagarde added.
She also warned that tensions over geopolitics could hit growth if they get out of hand. Russia has been in a stand-off with other major economies over its annexation of the Crimea region, prompting economic sanctions from the United States and the European Union.
"The situation in Ukraine is one which, if not well managed, could have broader spillover implications."
Spillovers are also a risk from the U.S. Federal Reserve's gradual winding down of its massive monetary easing program, which has hit emerging markets as investors bet on higher U.S. rates.