IMF's Lagarde: Global growth moderate, uneven

The head of the International Monetary Fund said Thursday that global growth remains "moderate and uneven" and that's "just not good enough" to erase the scars of the Great Recession.

IMF Managing Director Christine Lagarde, speaking ahead of next week's IMF-World Bank spring meetings in Washington, D.C., proposed steps governments can take to reduce debt, reform product and labor markets, and promote more cooperation among countries.

Lagarde's speech comes two days after World Bank President Jim Yong Kim told an audience at the Center for Strategic and International Studies in Washington that slow global economic growth threatened the World Bank's goal of nearly wiping out extreme world poverty by 2030.

Bettering the world economy will be discussed more at next week's IMF-World Bank meetings that will be attended by central bank governors and finance ministers from 188 countries.

"The global recovery continues, but it is moderate and uneven," she said Thursday morning at the Atlantic Council in Washington. "In too many parts of the world, (growth) is not strong enough. In too many parts of the world, people do not feel it enough. In addition, financial and geopolitical risks have increased."

Lagarde said global growth of 3.4% in 2014 was in line with the average for the past three decades, but that's inadequate to heal the damage from the recession, including 50% youth unemployment in some countries.

"Six months ago, I warned about the risk of a 'new mediocre' — low growth for a long time," she said. "Today, we must prevent that new mediocre from becoming the 'new reality.' "

The banking system, she said, has stabilized since the 2008 financial crisis, but risks have been "migrating to others ... from banks to non-banks, and from advanced economies toward emerging markets."

For example, she said, a strong dollar that has weakened foreign currencies is pinching emerging-market businesses burdened by massive dollar-denominated debt. And low interest rates are spurring excessive risk-taking by investors.

Among other steps, Lagarde said, debt-saddled emerging markets should use low oil prices to reduce government energy subsidies, channeling those resources into infrastructure and other investments.

She also said oversight of non-bank financial institutions must be strengthened and risk-taking should be curtailed.

And noting that growth prospects are lackluster, Lagarde said countries must enact long-delayed reforms of labor and product markets to reduce costs and increase competition.

"Frankly, in too many countries, these reforms have been lagging," she said.

In the eurozone, where a modest recovery is underway, bank credit must be freed up by addressing the 900 billion euros of bad loans.

Lagarde also advocated aiding European small businesses that drive employment and growth. She said the enterprises hold a disproportionate share of bad loans and must be put on firmer footing. And in China, small businesses need greater access to capital.

And "in too many countries," she added, there are barriers to women who want to work.

Lagarde renewed a call for sweeping infrastructure investment. "Our own research shows that boosting efficient infrastructure investment can be a powerful impetus for growth both in the short run and long run," she said.

While growth in advanced economies, including in the U.S., is up modestly, emerging markets and developing countries are doing slightly worse largely because of lower oil and other commodity prices, she said. Growth in China is slowing but still solid, Russia and Brazil are struggling, and parts of the Middle East are beset by economic and political turmoil, she said.

To promote stronger growth, Lagarde called for more international cooperation. She renewed her plea for the U.S. to approve IMF reforms that would give emerging markets more voting power in the organization. Congress' refusal to approve the changes has blocked its implementation.

And she advocated collaboration with new funding institutions, such as the Asian Infrastructure Investment Bank, which launched in October 2014 to fund projects in developing Asian countries. The U.S. has opposed the institution.