"Public investment has taken a hit over the years in many countries; higher, well-prioritised investment would increase potential output and jobs," IMF chief told a Washington audience yesterday.
"In Brazil, India, South Africa, and across the ASEAN countries, more public and private investment is essential to close infrastructure gaps.
Investment to upgrade existing infrastructure networks is also needed in a number of the advanced economies, for instance, in Germany and the US," she said in her address to the School of Advanced International Studies.
As the world is still recovering from the Great Recession and geopolitical tensions are rising, how can we strengthen the international cooperation that is key to addressing these challenges, She questioned.
She said the global economy has certainly stabilised since the onset of the financial crisis, but the recovery was too weak for comfort,
"Moreover, unless countries come together to take the right kind of policy measures, we could be facing years of slow and sub-par growth,well below the solid, sustainable growth that is needed to create enough jobs and improve living standards into the future," she added.
Highlighting that the major G20 countries, at their meeting in Australia in February, recognised that the right policy actions by countries and the right cooperation across countries could raise world GDP by over 2 per cent over the next 5 years, Lagarde said this would place the global economy on a substantially different and better trajectory.
Noting that the economic activity in the advanced economies is improving, albeit at varying speeds, the Managing Director said, "the emerging market and developing economies have been shouldering the burden of recovery—accounting for 75 percent of the increase in global growth since 2009." I
The recovery is finally becoming a bit more balanced, in an overall economic landscape that has changed significantly, she added.
In the advanced economies, growth is strongest in the United States, supported by robust private demand and an easing of the short-term fiscal brake.
Lagarde said activity in emerging market economies, which has been slowing, picked up slightly in the latter part of 2013 by stronger demand from advanced economies.
"Although tighter external financial conditions will be a drag on domestic demand, emerging Asia in particular will continue to be a bright spot, posting the world's highest growth rate of more than 6½ per cent this year," she said.