Global economy to strengthen in 2014 but risk remains: Lagarde

The global economy, which gathered momentum in 2013, would continue to strengthen in 2014, largely due to improvements in the advanced economies, the IMF Chief Christine Lagarde has said even as she expressed concern over the rising risk of deflation.

"We saw the momentum strengthen in the latter half of 2013 and we believe that it will continue to strengthen in 2014, largely due to improvements in the advanced economies.

"Yet, despite that and that directionally positive movement, growth is still stuck in fairly low gear," Lagarde the IMF Managing Director, told reporters at a luncheon hosted by the National Press Club on Wednesday.

"It remains below potential, which we believe is at around 4 per cent, which means that the world could - if it worked at full potential - could create a lot more jobs than before, than we do have at the moment, and we could do that without having to worry about the inflation genie coming out of the bottle," she said.

She said overall the direction was positive, but global growth was still "too low, too fragile and too uneven".

"Moreover, even as it is - or as we forecast that it will be - it is not enough to create the 200 million jobs that are needed by people who are looking for a job everywhere in the world," Lagarde said.

She noted it will not be without downside risks, and significant ones.

"With inflation running way below Central Bank targets in most corners, clearly we are seeing a rising risk of deflation, which could prove disastrous for the recovery.

"If inflation is the genie, then certainly deflation is the ogre that must be fought decisively,” Lagarde said.

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