THE HEAD of the International Monetary Fund (IMF) yesterday warned that the global economy’s “new mediocre” phase of low growth risked becoming the “new reality”.
Speaking ahead of next week’s spring meetings of the IMF and World Bank, Christine Lagarde said the recovery from the 2008 financial crisis was continuing, with global growth last year of 3.4 per cent – in line with forecasts.
But the IMF managing director warned: “Six months ago, I warned about the risk of a ‘new mediocre’ – low growth for a long time.
“Today, we must prevent that new mediocre from becoming the new reality.”
“The bottom line is that risks to global financial stability are rising. The ‘new mediocre’ growth environment is not a comfortable place with respect to financial stability.”
Among those risks, she said, was a “structural decline in market liquidity” caused primarily by changes in the asset management industry in advanced economies that had created a mismatch in the maturity of assets and liabilities.
“This means that liquidity can evaporate quickly if everyone rushes for the exit at the same time – which could, for example, make for a bumpy ride when the Federal Reserve begins to raise short-term rates,” she added.
“Here is the big issue: while current growth is moderate, so too are medium-term prospects,” Lagarde said.