IMF boss warns, economy 'too weak for comfort'

The global economy could be heading for years of "sub-par growth", according to the head of the International Monetary Fund (IMF). Christine Lagarde warned that without "brave action" the world could fall into a "low growth trap".

She said the global economy would grow by more than 3% this year and next, but that market volatility and tensions in Ukraine posed risks.

Ms Lagarde also urged more action to tackle low inflation in the eurozone. She called on the European Central Bank (ECB) to pursue "more monetary easing, including through unconventional measures".

"There is the emerging risk of what I call 'low-flation', particularly in the euro area. A potentially prolonged period of low inflation can suppress demand and output, and suppress growth and jobs," she said.

Her advice to the ECB, in a speech on Wednesday, came the day before a meeting of the Central Bank's policy makers. Economists do not expect them to take any measures to reverse a drop in the region's rate of inflation, which fell to 0.5% in March, its lowest since 2009.

It was also the sixth month in what ECB President Mario Draghi has called "the danger zone" below 1%. The IMF's Managing Director said that global economic signs were positive overall, but that "without sufficient policy ambition, the world could fall into a medium-term low-growth trap".

She called for governments to reform labour markets to encourage job creation, and for more public investment such as transport and communications networks in rich and emerging countries.

In a speech seen as a precursor to the IMF's spring meetings in Washington next week, Ms Lagarde specifically referred to the US Federal Reserve's gradual winding down of monetary stimulus.

The US Central Bank is slowly reducing the rate at which it buys bonds, which has been pumping money into the country's economy.

But it has had a damaging impact on emerging markets, as investors withdrew money back to the US in the hope of achieving higher interest rates.

Ms Lagarde said there needed to be greater cooperation among policy makers to limit the impact of the Fed's tapering, and warned the problem could also "spill back" to the US.

She also warned the situation in Ukraine could have "broader spillover implications" if not well managed. The IMF last week announced financial support of $14-18 billion (£8.5-£11 billion) for Kiev in exchange for tough economic reforms.

- BBC