The global economy is no longer in a danger. Signs of stabilization are emerging from the euro zone and the United States. Nevertheless, high debt levels in developed markets and rising oil prices remain key risks ahead, according to the IMF.
“The global economy may be on a path to recovery, but there is not a great deal of room for man oeuvre and no room for policy mistakes,” International Monetary Fund (IMF) Managing Director, Christine Lagarde, said in in Beijing on Sunday.
She noted that signs of stabilization show that policy actions taken in the wake of the global financial crisis were paying off. The U.S. economic indicators were looking more optimistic. Europe had taken an important step forward in solving its crisis with the latest efforts to resolve the Greece situation.
“On the back of these collective efforts, the world economy has stepped back from the brink and we have cause to be more optimistic. Still, optimism must not lull us into a false sense of security. There are still major economic and financial vulnerabilities we must confront,” Lagarde said.
Fragile financial systems burdened by high public and private debt keeps advanced economies as the first of three major risks. The euro zone public sector and bank rollover funding needs in 2012 were equivalent total about 23 percent of GDP.
“Second, the rising price of oil is becoming a threat to global growth. And, third, there is a growing risk that activity in emerging economies will slow over the medium term,” Christine Lagarde continued.
The IMF Managing Director also commented that youth unemployment should be tackled. All countries must persevere with their policy efforts if the progress made in stabilizing the global economy is to pay off with better prospects ahead.
She said advanced economies must continue with macroeconomic support and a balanced fiscal policy, together with financial sector reforms and structural and institutional reforms. Such efforts will work to repair the damage done by the crisis and to improve competitiveness.
Emerging market economies need to calibrate macroeconomic policies, both to guard against fallout from the advanced economies as well as to keep overheating pressures in check.
