Christine Lagarde, managing director of the International Monetary Fund, said the world economy is marked by "a high degree of instability" even though prospects for global growth are better than they were a few months ago. The IMF has revised its forecast for 2012 global growth to reflect improving conditions, IMF managing director Christine said in an interview with The Wall Street Journal. Lagarde said the IMF, which marked down its 2012 forecast for global growth in January to 3.3 percent, has now marked it up to reflect improving conditions in the world economy. But she said the new forecast, to be released next week, remains more pessimistic than the one it made last September, which predicted 4 percent growth. Europe remains the biggest single risk to the global economy, the former French finance minister said. The IMF chief called for a "rebalancing" of the global economy that will involve a worldwide safety net similar to the reserve fund that European institutions have created to bail out debt-ridden members. In a speech at the Brookings Institution Thursday, Lagarde praised the building of the $1.1 trillion "financial firewall" being held by the European Financial Stability Facility and the European Stability Mechanism but said a "broader approach" beyond the borders of the eurozone is needed. "In today's global economy, with its dazzling array of instant interconnections, a stronger European firewall can only ever be part of the solution," Ms. Lagarde said. "A stronger global firewall will help complete the 'circle of protection' for every country." The euro-zone has taken all the right steps, she said, referring to reforms in Italy and Spain, lending by the European Central Bank and the recent agreement to enlarge the Continent's emergency-rescue fund. "It has done it in a fragmented, piecemeal and, sometimes, too slow way. But if you compile it all together, they have done an awful lot." Spain and Italy, she added, "are moving now fast enough in terms of reforms. It's a question of keeping at it. It's one thing to pass legislation, but you really have to make sure that it is implemented on the ground. There, clearly the jury is still out." Lagarde noted the decline in China's current-account surplus, the broadest measure of its trade balance. Some of that welcome development reflects weaker demand for Chinese exports because of slower growth around the world. But some reflects the long-sought increase in domestic consumption in China, which she described as "a step in the right direction." China's current-account surplus has gone from 10 percent of gross domestic product a few years ago, to around 3 percent. The IMF expects China's current-account surplus to fall to 3 percent from around 10 percent a few years ago. As the world economy recovers, the IMF expects China's surplus to be between 4 percent or 5 percent of GDP, substantially smaller than the 7 percent it previously forecast.
