The guardian of global growth and economic stability has set its sites lower for the coming year in its twice-yearly World Economic Outlook. The International Monetary Fund warns of possible new dangerous downturns.
It revised downward around a third of one percent the growth projection for 2014, to 2.9 percent.
Europe is not seen as the main source of worry. The IMF focuses on emerging economies that depend on foreign investment, and big budget trouble in the US.
China is expected to post 7.3 percent, the United States 2.6 percent, Japan 1.2 percent and the euro zone one percent.
Head economist at the IMF Olivier Blanchard, speaking in Washington, tracked current challenges back to 2008: “The recovery from the crisis continues. I think that is a fact and an important one – but too slowly. Advanced economies are not out of the woods; public debt, and in some case private debt, remain very high, and fiscal sustainability is not a given. Unemployment remains very high and it will remain high for a very long time.”
IMF Managing Director, Christine Lagarde reinforced the ‘slow’ message: “We have seen a global crisis and we will be seeing global transitions. We are probably moving from the Great Depression [to] the ‘Great Transition’. All these transitions, all these massive changes are not going to be fast, are not going to be easy, and the countries will likely spend the rest of the decade adjusting to the new reality.”
Reality is just fine for some: Crédit Suisse bank reports record wealth accumulation concentrating in the hands of a few – a 68 percent increase in overall wealth in the past ten years. This illustrates the scale of imbalances.
The Swiss themselves top the ranking of per adult wealth, at a nominal average of 380,000 euros each, followed by the Australians, Norwegians and Luxembourgers.
Crédit Suisse says two thirds of people in all countries combined make do with just three percent of the world’s wealth: three percent of its wealth sustains the vast majority.
Data like this suggest the fortunes of a diamond-tipped minority are growing.
Adrian Lancashire spoke to International Monetary Fund First Deputy Managing Director David Lipton for his view.
euronews: “Five years ago the financial crisis went global; the rich are still getting richer, the poor getting poorer and the middle is under strain. Isn’t this driving economic recovery and development over a cliff?”
David Lipton: “The most important thing is to get the global economy going again. Advanced economies are recovering and emerging markets, economies, are slowing down, and we are putting our emphasis on trying to help each country, each part of the global economy, get going again. It’s true that income inequality has risen; partly this is because people who are unemployed have a harder time, partly there are ongoing pressures from globalisation and technological change, and the ability of some in the market to make very high profits. But the most important challenge for us is to help countries get going again and also reform the financial systems so that the kind of events that we saw before can never recur.”
euronews: “In lots of countries, ordinary people who borrowed more than they could repay are being punished economically, jobs and homes lost, retirement and education. What is IMF policy so the people who led them to over- borrow or who mismanaged risk, are also punished?”
Lipton: “I think going forward it’s important that the supervisors, the people that supervise banks, make sure that banks behave in a safer way. The international financial community had a project of financial regulatory reform ongoing for several years. I think it is making a lot of progress. We are not satisfied that everything is in place, but it will be very important that new rules are adopted and followed, so that the problems that brought down the world financial system can not recur.”
euronews: “IMF policy is to encourage countries to run their economies differently; that’s your condition for helping them. Critics say you’re blackmailing them. What do you say to that?”
Lipton: “Well, they don’t have to do businesses with us if they don’t want to. What I think we offer them is something they can’t otherwise have, which is our financial support, and our seal of approval, if they undertake policies aimed at improving their situations. Then they get, in essence, the imprimatur of the entire – not us as an institution but of the community of our membership – they get the imprimatur of support from that. I think that the advice that we have given to European countries has been useful during this crisis, and I think that the financial support in conjunction with the financing that has come from Europe itself, has also been very helpful.”