Christine Lagarde, head of the International Monetary Fund (IMF), has warned that the ongoing debt crisis in Europe coupled with slow global growth mean the world is in danger of a “lost decade.”
Lagarde means a decade in which economic advancements were lost during the financial crisis and never recuperated. She added that while European leaders are on the right track to solving the eurozone crisis, more must be done at a faster pace to restore confidence.
Lagarde has spoken of the danger facing the global economy and recently issued warnings to multiple key global players.
The IMF called upon Beijing to rebalance its economy as well as eurozone leaders to stop the contagion of the debt crisis.
“If we do not act together,” Lagarde said, “the economy around the world runs the risk of downward spiral of uncertainty.”
She said that this downward spiral would be fuelled by financial instability, and could lead to the “collapse of global demand.”
Her comments come at a time when analysts fear the debt crisis, left unchecked, will spread to some of Europe’s biggest economies. The fears are fuelled by Italy, whose cost of borrowing on Tuesday reached the highest level since the euro was conceived.
The high cost of borrowing is considered “unsustainable” by some, and the world is watching anxiously to see if Italy has the capacity to service its debts. Should Italy need a bailout and the debt crisis spread, the IMF warns that the international economy will suffer a crushing blow.
‘Clouds on the horizon’
Lagarde also singled out the United States, whose slowdown is a big threat to global growth. The country is struggling to boost economic growth while tackling record high rates of unemployment.
The threats of a US recession and disorderly defaults in the eurozone are what Lagarde calls “clouds on the horizon” that she is calling on global leaders to outrun.
The IMF is particularly concerned about the US and the eurozone, as they are largest economic regions in the world and are the biggest market for Asian goods.
This means that while export-led economies such as China have been experiencing a boom, Asia is far from immune from the troubles of the global economy.
In order to soften the blow from falling demand from the hard-pressed eurozone, the IMF is urging China to alter its economic policies to foster domestic demand and help its economy become self-sustaining.