The world economy continues to fall short of its potential, and lagging prosperity is opening political rifts in many countries, International Monetary Fund managing director Christine Lagarde said Thursday, according to dpa. "Despite signs of recovery and resilience in some economies, global growth continues to disappoint, with the expected pick-up driven primarily by emerging markets," she said in presenting her global policy agenda. "This persistent underperformance has exposed complex underlying trends in many countries - including the difficulty for some groups to adjust to rapid changes in the global economy." She urged governments to act "to revive demand and raise productivity, and ensure the gains from technology and globalization - which have led to unprecedented global welfare gains in recent decades - are shared more broadly." The IMF this week left its global economic forecasts at 3.1-per-cent growth this year and 3.4 per cent in 2017, both unchanged from the previous update in July. Advanced economies are lagging, while emerging markets and developing countries are again becoming the source of most of global expansion. Especially in rich countries, political movements questioning or opposing trade, migration and multilateral integration are gaining ground. Lagarde warned that "a retreat" from globalization is a "serious risk." The IMF announced Thursday that low-income countries would be able to borrow interest-free on most loans through 2018, after a recent decision by the fund's executive board. The zero interest rate could continue even longer if global interest rates remain low, Lagarde said. "That is really important for low-income countries to be able to actually absorb the shocks without necessarily going to the international markets or relying on bilateral lending that can be far more expensive," she said. With central bank benchmark interest rates in the US, European Union and Japan at or near historic lows, huge cash flows have surged into emerging markets and developing countries as investors seek higher returns outside the slow-growing rich countries. Such investment flows have often reversed quickly in response to tightening monetary policy, currency fluctuations or crises in emerging markets. Such volatility can create tough to manage balance-of-payment shortages, in which the IMF is often asked to help. "If we want to address the inequality issues, we need to have a strong international safety net so that countries that feel at risk - because of policies determined elsewhere - have the tools, have the financing instrument to actually respond," Lagarde said.
