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IMF Warns Slow Global Productivity, Growth Risks Stability

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NEW DELHI: “Another decade of weak productivity growth would seriously undermine the rise in global living standards,” says Christine Lagarde Managing Director of IMF (International Monetary Fund) at an event held by the American Enterprise Institute.

According to Lagarde, the slower growth could also jeopardize the financial and social stability of some countries by making it more difficult to reduce excessive inequality and sustain private debt and public obligations.

However, IMF published a research on reasons which led to the slower productivity growth after the 2008 global financial crisis. It found that the financial crisis had bigger impact on the slowdown of productivity growth than previously expected.

Lagarde said that aging population, slower global trade and unresolved legacy of the global financial crisis are the three major headwinds for productivity growth, of which the legacy issue is a crucial factor.

The research found that interrelated factors have resulted in persistent loss in total factor productivity: weak corporate balance sheets have constrained investment; an adverse feedback loop of weak aggregate demand, investment and capital-embodied technological change seems to have afflicted the advanced economies; increased economic and policy uncertainty may have further weakened productivity growth.

It warned that these factors remained a significant drag on productivity growth, especially in continental Europe.

To address the crisis legacies, the IMF called for actions to address weak corporate and bank balance sheets, reduce policy uncertainty and boost investment on high-return infrastructure projects, in order to simulate demand and then induce greater private investment and productivity growth.

Lagarde also called for more education and training to raise productivity growth and reduce inequality.

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