The leaders of the world economy will gather in Washington to confront a global growth outlook that can only be described as disappointing. Geopolitical tensions -- most recently on display in Hong Kong -- are on the rise, deflation in Europe is a persistent threat, while progress here in the United States still feels stunted.
In a speech at Georgetown University on Thursday morning, International Monetary Fund Managing Director Christine Lagarde previewed the themes that will shape the upcoming IMF/World Bank meetings. There is little variation from the drumbeat that international policy leaders have been hammering since the global recession gave way to a lackluster recovery. Here are three takeaways from her speech. Only time will tell whether the message is finally sinking in, or if Lagarde will return next year playing the same tune.
Global growth: The new "mediocre"
The IMF will release its updated global forecast next week, but suffice it to say, the picture has grown considerably dimmer. Here’s how Lagarde put it:
Overall, the global economy is weaker than we had envisaged even six months ago. Only a modest pickup is foreseen for 2015, as the outlook for potential growth has been pared down.
Emerging markets, which have accounted for 80 percent of world growth since 2008, have slowed down. But advanced economies such as the United States and the United Kingdom have yet to achieve the type of robust recovery that could pick up their slack. That means the world could get stuck in a cycle of what Lagarde described as “mediocre” growth that prolongs the damage from the global recession.
Monetary policy isn’t enough
The world’s central banks have taken center stage since the crisis, helping to prop up the recovery by keeping money flowing through the global financial system. But this historic era of easy money is nearing its end some countries, including the United States, and nearing the limit of its powers in others, such as the Euro zone.
“Monetary policy is playing its part. Now it needs more support from the rest of the team,” Lagarde said. "It's as if you have a great defense player, but that's it. You don't score."
She pointed to fiscal policies that could create jobs, such as through spending on infrastructure, as well as generate revenue through tax reform or revamping energy subsidies. Lagarde also highlighted worker training programs in Germany and Sweden and efforts in Japan and Korea to draw more women into the labor force.
Is the global economy at an inflection point?
That was the description Lagarde used to rally the economic troops and convey urgency in adopting expansionary policies. It raises an important broader question: How much does a prolonged period of slow growth affect the ability of the global economy to pick up the pace in the future?
We may be learning the answer now.