Don’t get too comfortable.
That’s the message that IMF First Deputy Managing Director David Lipsky sent in a speech Tuesday to the National Association for Business Economics, in which he argued that the global economy is at serious risk for “derailment.”
Here in the United States, stock markets have rallied while jobs data has remained strong, assuaging some of the recession fears that were prominent at the start of the year. But Lispky argues that fundamental questions about the health of the global economy remain, and that we should not become complacent. “The IMF’s latest reading of the global economy shows once again a weakening baseline,” he said. “Moreover, risks have increased further, with volatile financial markets and low commodity prices creating fresh concerns about the health of the global economy.”
Lispky argued that governments around the world, including those in Europe and the U.S. need to wake up to the risk of a serious global downturn. He argued that governments need to adopt policies that support global trade as well as domestic demand. That means wealthy countries with budget flexibility need to invest in infrastructure to boost economic growth as well as create jobs in the short run. Lipsky also called for supply side reforms like the trimming of regulations and red tape.
“Now is the time to decisively support economic activity and put the global economy on a sounder footing,” Lispky said. “This requires some tough choices, with advanced economies in particular needing to step up to the plate.”