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

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza