Five Updates on the Global Economy from Christine Lagarde’s ‘Hardtalk’ Interview

IMF managing director says global economic growth is “too slow, too fragile” during meetings held on GW's Foggy Bottom Campus.

IMF Managing Director Christine Lagarde during the live taping Thursday of the BBC's "Hardtalk" with host David Sanger. (Logan Werlinger/GW Today)
April 18, 2016

By Brittney Dunkins

IMF Managing Director Christine Lagarde was cautiously optimistic about the progress of the global economy during an interview Thursday with BBC “Hardtalk” host David Sanger at the George Washington University’s Lisner Auditorium.

GW students, faculty, staff and community members attended the live taping, held the first day of the 2016 IMF annual spring meetings. The annual meetings have been held on the Foggy Bottom Campus since 2013.

According to Ms. Lagarde, the global economy continues to struggle with the “legacy of crisis” created by the 2008 financial recession.

“We are on alert but not on alarm,” Ms. Lagarde said. “The global economy is recovering…but what we see is growth that is too slow and too fragile.”  

“It’s too slow and too fragile to respond to the demand of 200 million people who are looking for jobs," she said. "It’s too slow and too fragile to increase the standard of living of people who would like to see it grow, and it’s too fragile and too slow to continue to eliminate poverty around the world.”

George Washington Today reporter Brittney Dunkins compiled five highlights from Ms. Lagarde’s update on the global economy.

New economic landscape

Ms. Lagarde said that the financial sector has completely changed following the 2008 financial crisis, but reforms have been instituted unevenly across economies.

She cited the recapitalization of systemically important banks and increased oversight by financial institutions as an example of positive progress, but added that many banks—and countries—in the Eurozone and South America still need improvements.

Despite Mr. Sanger’s prodding, Ms. Lagarde declined to specifically name the economies that are struggling the most and urged the audience to review the IMF world economic outlook to understand larger trends.

The IMF projects 3.2 percent growth for the global economy in 2016.

“I’m not saying that we are in a 2008 situation,” Ms. Lagarde said. “What I am saying is that if that slow and fragile growth is entrenched, then dealing with the legacy of the crisis is going be increasingly difficult.”

Recovery of Greece

The IMF’s role in Greece’s recovery will depend on the reforms that are developed, Ms. Lagarde said. To achieve “meaningful debt relief” and independence from the IMF, Greece needs to use “realism and sustainability” to create a debt operation and effective policies, she said.

For example, Ms. Lagarde suggested an expansion of maturities, a short “interest holiday” during which interest rates would be suspended or reduced interest on the principal of Greek debt as potential measures that would support the creation of “sustainable debt.”

“We will not walk away, but our former participation may vary depending on the commitments of Greece and the undertakings of the European Parliament,” Ms. Lagarde said. “We are saying that it needs to all add up.”

Outlook of China’s Economy

Ms. Lagarde said that uncertainty about China’s ability to drive global growth is unfounded considering trends in the economy. Though growth rates have slowed, Ms. Lagarde said it was a “normal” development for a changing economy.

The IMF is encouraged to see China opening to the rest of the world, even as it shifts from an export economy to a local market and from an industry-driven economy to service-driven economy, Ms. Lagarde said. China’s economy is expected to grow by 6.5 percent in 2016—up from an initial projection of 6.3 percent growth. It is one of the few countries that received an upgraded economic forecast from the IMF.

“This is an economy going through a massive transition,” Ms. Lagarde said. “We see all of that [the changes] as transformational, difficult to manage, but manageable.”

The role of the IMF

Ms. Lagarde also was asked about the IMF’s role in countries with questionable political integrity. For example, the IMF has received criticism for lending to the Ukraine, which has been in civil war since 2013. Ms. Lagarde insisted that whenever corruption is uncovered, the IMF immediately cuts funding to the country involved.

“When we go to help a country, we don’t go to help a president or a prime minister. We go to help the people,” Ms. Lagarde said. “There have been situations where we just stop paying.”

U.S. economy and politics

To questions of when the United States will raise interest rates, Ms. Lagarde offered firm support for the actions taken by Board of Governors of the Federal Reserve System Chair Janet Yellen to restore the full health of the U.S. economy.  

“The board, under her leadership, will make the right decision, and the sooner that happens, the sooner it will indicate that the U.S. economy is doing better,” she said.

In a final pithy moment, Mr. Sanger’s last question to Ms. Lagarde was whether she and the IMF would support a presidential ticket of Donald Trump and Ted Cruz. She answered with her trademark composure.

“The IMF, and personal company included, we believe in a free world,” Ms. Lagarde said. “So any proposal to restrict trade, to exclude, to eliminate, to build barriers is not something we believe is conducive to a stable and prosperous global economy.”