By Christopher S. Rugaber, AP
WASHINGTON — Two problems stemming from the 2008 financial crisis �X heavy government borrowing and high unemployment �X still pose challenges to the global economy and require bold action, the head of the International Monetary Fund said.
Christine Lagarde, IMF managing director, said Thursday that cheaper oil and strong U.S. growth aren’t enough to counter those threats.
��We believe that global growth is still too low, too brittle and too lopsided,�� she said in remarks before the Council on Foreign Relations.
Europe and Japan potentially face years of slow growth and ultra-low inflation, she said, while the United States ��is the only major economy that is likely to buck that trend this year.��
Her warnings came after the IMF’s sister organization, the World Bank, on Tuesday lowered its forecast for international growth. The World Bank now expects the global economy to expand 3 percent in 2015, down from a 3.4 percent estimate in June. The bank cuts its forecast because of stagnation in Europe and Japan and slower growth in China.
The IMF will issue its own update to its forecasts next week.
Cheaper oil should leave consumers in most wealthy nations with more money to spend on other goods, thereby supporting their economies, Lagarde said. But there are downsides as well, she added. Falling gas prices are pushing the 19 European nations that share the euro currency closer to deflation, a destabilizing fall in prices and wages.
The threat of deflation in Europe ��bolsters the case�� for the European Central Bank to provide more stimulus, she said. Next week, the ECB is expected to launch a bond-buying program intended to reduce borrowing costs for businesses, households and governments.