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IMF Warns World At The Brink Of 'Economic Derailment'

IMF Warns World At The Brink Of 'Economic Derailment'

IMF said global economic recovery continues, but the risk of economic derailment has grown, David Lipton, second in command at the IMF, told in a speech to the National Association for Business Economics in Washington.

The IMF's latest reading of the global economy shows once again a weakening baseline. Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.

The downside risks are clearly much more pronounced than before, and the case for more forceful and concerted policy action, has become more compelling.

Lipton said what is needed is a three-pronged approach through monetary and fiscal policies, as well as structural reforms to strengthen the baseline and guard against the risks. In addition, collective global action should play a supporting role in helping leverage individual country action and seeking to make the international monetary system more stable and hence supportive of growth.

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"Together with bank repair, where needed, and with proper targeting on infrastructure, this approach would create jobs, and likely reduce public debt-to-GDP ratios in the medium term by stimulating nominal GDP, and supporting credit and financial stability," Lipton noted.

By strengthening the global outlook, such coordinated action would speed up healing in the banking sector and forestall contingent liabilities for governments that loom in the face of inaction. It would also have substantial positive spillovers to vulnerable emerging economies, including commodity exporters that may not be able to participate directly in the fiscal expansion.

"I think that at the recent G20 meetings in China there was broad recognition of these risks and priorities. Now is the time to decisively support economic activity and put the global economy on a sounder footing," Lipton said.


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