Christine Lagarde: Global Economic Growth Is Still Below Potential

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“The global economy in 2013 remained suspended between the poles of hope and uncertainty,” wrote Christine Lagarde, managing director of the International Monetary Fund, on Wednesday, the first day of the World Economic Forum in Davos, Switzerland. “While recovery gained momentum, particularly in some advanced economies, the world economy is not yet flying on all engines — and is likely to remain underpowered next year as well.”

Lagarde’s observation is that right now, five years after the financial crisis brought many of the world’s major economies to their knees, the global economy is still limping along and growing at a rate that is below potential. The IMF forecasts global gross domestic product growth of 3.6 percent in 2014, 0.4 percentage points below estimated potential output of 4 percent. This compares against an estimated growth rate of 2.9 percent in 2013 and 3.2 percent growth in 2012.

Like many other economists and policymakers, Lagarde’s diagnosis of the global economic situation is multifaceted and cautiously optimistic. Lagarde described current global GDP growth as “decent” but was quick to argue that “the IMF’s members — whether advanced, emerging-market, or developing economies — have more work to do.” The IMF has 188 member countries and is a special unit of the United Nations. Through a system of quotas, the IMF serves as an economic facilitator and financial stabilizer. Through events like the World Economic Forum, it also serves as a policy advocate.

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