IMF Largarde Warns of Deflation Risks

The head of the International Monetary Fund has warned about the risks to global economic recovery of deflation.

Christine Lagarde said that “optimism is in the air” about growth, but the recovery is still “fragile”.

“If inflation is the genie, then deflation is the ogre that must be fought decisively,” she said in a speech in Washington.

Earlier, the World Bank said that the global economy was at a “turning point” but “remained vulnerable”.

“We see rising risks of deflation, which could prove disastrous for the recovery,” Ms Lagarde said at the National Press.

There has, for example, been growing debate about whether deflation might take hold in the eurozone, where inflation remains persistently below the European Central Bank’s target.

Deflation can reduce personal consumption as people wait for prices to fall further, and discourage investment because it can raise the real cost of borrowing.

Ms Lagarde also warned about the volatility that could accompany the US Federal Reserve’s gradual withdrawal of monetary stimulus.

“Overall, the direction is positive, but global growth is still too low, too fragile, and too uneven,” she said.

via BBC

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