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Lagarde warns against 'low-growth trap'

September 1, 2016

Issuing a stark warning ahead of this year's G20 summit, the head of the International Monetary Fund, Chrstine Lagarde has called on world leaders to take decisive action to revitalize the sluggish global economy.

Christine Lagarde
Image: Reuters/J. Naegelen

Forceful economic reforms are needed in the face of global economic weakness and calls for isolationism, IMF Managing Director Lagarde said on Thursday, in a challenge to Group of 20 leaders as they prepare to gather in China this weekend.

"This meeting comes at an important moment for the global economy," Lagarde said. "The political pendulum threatens to swing against economic openness, and without forceful policy actions, the world could suffer from disappointing growth for a long time."

Lagarde also noted that as of 2016, global economic growth had stagnated for five years below the 3.7 percent average that prevailed between 1990 and 2007. The weak global growth, coupled with rising economic inequality, "is feeding a political climate in which reforms stall and countries resort to inward-looking policies," she pointed out.

The comments come ahead of this year's G20 summit, which will take place from Sunday in the Chinese city of Hangzhou.

No breakthroughs expected

But analysts say the summit is unlikely to achieve a breakthrough, given that it occurs in the absence of a crisis which could prod governments to take action.

Lagarde said the world faced a "low-growth trap" - high debt, weak demand, eroding work forces and labor skills, weakening incentives for investment and slowing productivity.

The Washington-based IMF said average growth rates in the G20 member countries of 1.5 percent look to remain a percentage point below long-term averages in the medium term.

US growth would also likely be weaker than previously expected in 2016, IMF economists said in a report. The report's chief author, IMF economist Helge Berger, told reporters in Washington the organization expected to downgrade its US growth forecast in light of the poor performance seen in the first half of this year.

US President Barack Obama, meanwhile, will use the trip to Asia to promote a 12-nation Pacific trade deal that is also facing strong headwinds amid a rising anti-trade sentiment.

sri/cjc (AFP, dpa)