International Monetary Fund managing director Christine Lagarde said Sunday that public investment should be ramped up in some countries as the global economic recovery remains fragile and laborious.
“In the current context of a weak growth outlook and low borrowing costs, a judicious stimulation of public investment can give growth the necessary impetus, above all in advanced economies,” Ms. Lagarde said at the Rencontres Economiques conference in the south France.
The remarks underline the threats to global economic growth at a time when the U.S. Federal Reserve is trimming stimulus and the European Central Bank is fighting inflation that is less than half its targeted level. The IMF is preparing to update its economic forecasts this month after predicting April 8 that the global economy will expand 3.6 percent this year and 3.9 percent in 2015.
Growth in the U.S., the world’s largest economy, is set to accelerate in coming months and Asia’s emerging market economies will avoid a hard landing, though the European recovery is still not as strong as it should be, Lagarde said.
“We [IMF] see an investment deficit everywhere,” Lagarde said. Yet public policy must be dictated by debt sustainability, she said. “If you’re not in a medium-term situation that assures sustainability, you can’t undertake major infrastructure investment.”
But Ms. Lagarde said several conditions must be met for a country to increase investment, including affordable financing and an actual need for increased infrastructure. She said many of the world’s leading economies have large infrastructure needs—particularly the U.S., the United Kingdom and Germany—while others, such as France, have less need.
The key condition for relaunching public investment is strong public finances, she said.
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