IMF deputy chief: Structural reforms key to sustained growth

The global recovery is on better footing but still fragile, highlighting the importance to carry out key structural reforms that will boost growth in the longer run, a senior official of the International Monetary Fund (IMF) said here on Sunday. "Growth numbers are not bad but still too weak for comfort," Zhu Min, deputy managing director of the IMF told Xinhua as the IMF and World Bank Spring Meetings were drawing to a close. "The global recovery continues, with a projected growth rate of 3.6 percent this year. However, much of the improvement in advanced economies is attributable to lessened fiscal consolidation. This is a one-off factor, thus more needs to be done to boost growth potential," he added. Economic activities in emerging economies have broadly stabilized, and growth in low-income countries continues to be strong but with reduced fiscal buffers, Zhu noted. Zhu further said that as the U.S. Federal Reserve withdraws its massive monetary stimulus program, global financial market is moving from liquidity-driven to growth-driven pattern, and the shift is far from complete with asset repricing underway. "We expect the financial market volatility to continue for some time." Zhu also expressed concerns over low inflation in the euro area, which, in his view, is partly due to the output gap after the financial crisis, and the decline in prices for commodities such as crude oil, food and precious metals. Striking a cautious note, Zhu said analyzing the cause of low inflation and preventing it from evolving to real deflation is key to promoting weak growth. He emphasized the importance of keeping monetary policy accommodative, calling deflation a danger to demand and output and consequently income and jobs. Zhu's comments came a day after European Central Bank President Mario Draghi hinted at further stimuli to combat low inflation. One of the options would be quantitative easing. Zhu also warned about the rise of geopolitical tensions, calling for international cooperation to reduce the spillover effects of the Ukraine crisis. "So the year of 2014 will be a year of transition and reforms for the global economy. Only by intensifying reform can we lay a more solid foundation for growth in the future," said Zhu. He said there have been a lot of discussions about structural reforms among the finance ministers and central bank governors attending the Spring Meetings, and global finance officials applauded China's efforts in maintaining solid growth. In his view, China has to sustain economic growth in a proper range, while deepening structural reforms and reining in financial risks. "Balancing these three is an important challenge, but no easy job," said Zhu. Zhu also said that China's long-term adjustment plan is gaining more acknowledgement globally and a more balanced Chinese economy is good for the world economy. He suggested emerging market economies pay close attention to the changing external environment. As favorable factors such as ample liquidity and low interest rate contributing to the rapid growth of those economies in past years diminish, emerging markets have to turn to internal factors to bolster growth. In response to a question about the much-delayed IMF quota and governance reform package, Zhu said world economic leaders are deeply disappointed by the continued delay in advancing the IMF reforms agreed to in 2010, which would give big emerging countries including China more clouts in the IMF to reflect changes in the global economic landscape. The IMF board of governors will look for alternatives to protect the credibility and legitimacy of the institution if the U.S. Congress fails to ratify the reforms by the end of the year, Zhu added.