Global economy faces strong headwind despite low oil prices, IMF

The global economy is facing strong headwind despite the boost from positive factors such as lower oil prices and stronger U.S. economy, Christine Lagarde, Managing Director of the International Monetary Fund (IMF) said Thursday at a forum held by the Washington think tank Council on Foreign Relations.

In a speech that previews an IMF report due next week on the global economic outlook, Lagarde said the lower oil prices and U.S. growth are not a cure for deep-seated weaknesses elsewhere, adding too many countries are still weighed down by the legacies of the financial crisis, including high debt and high unemployment.

According to the IMF chief, among developed economies, the U.S. and U.K. will continue promising recovery, but growth remains very low in the euro zone and Japan. Emerging economies, including China, are also slowing down.

Lagarde said the already low global recovery is still in face of significant risks. Emerging economies could face a triple hit of strengthening U.S. dollar, higher global interest rates, and more volatile capital flows; euro area and Japan remain at risk of settling into a long period of weak growth and low inflation; and there are increased geopolitical risks.

Beyond being a boost for consumers' purchasing power, lower oil prices could provide an opportunity for countries to cut energy subsidies and use the savings for more targeted transfers to protect the poor, said Lagarde.

In the euro area, the low oil prices will further weigh down already low price level and increase deflation risk, thus additional monetary stimulus is needed, she said.

In order to energize growth, the IMF chief called for further structural reforms to remove distortions in labor and product markets, boost infrastructure investment, unleash the economic power of women, push forward trade liberalization, and enhance financial regulation.