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Global recovery fragile says IMF head

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The global economy remains fragile and it should be the United States that takes the lead on creating a lasting recovery, the head of the International Monetary Fund said last week. “Now is another moment for U.S. economic leadership,” said IMF managing director Christine Lagarde in a speech to the Associated Press.

Lagarde acknowledged that the global economy has improved in recent months, pointing to signs of stabilization in Europe, as well as stronger economic growth and hiring in the United States. But she cautioned that the financial system in Europe is still “under heavy strain” and that debt levels are “too high.” The global economy is also threatened by high unemployment and rising oil prices, she added.

“The recovery is still very fragile,” said Lagarde. The former French finance minister said it is “crucial” that global policy makers “finish the job” of rebuilding the global economy “and not lapse into complacency or insularity.” “We cannot afford the luxury of staying in our own mental backyards,” she said.

In particular, Lagarde called on the United States to continue to support economic growth domestically, which she said will help the global economy recover. “Perhaps more than any other country, the United States is intertwined in this global nexus, affecting — and being affected by — developments all across the world,” she said.

Lagarde suggested that central banks should continue to boost activity by keeping interest rates low, especially in advanced economies where inflation remains low. She added that governments should also use fiscal policy to support economic growth “wherever possible.”

While most countries need to bring down debt over time, Lagarde argued that a “undifferentiated rush to austerity will prove self defeating.”

The United States, which enjoys low borrowing costs, “should not move too quickly” to cut government spending, according to Lagarde. At the same time, she said the United States needs to fix its debt problems over time by slowing the growth of entitlement spending and raising more revenue.

Source: CNN News

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