ASIA:THE WORLD could be headed for a "lost decade" of little or no growth unless countries work together to deal with the global economic crisis, International Monetary Fund managing director Christine Lagarde said during a two-day visit to China.
“In our increasingly interconnected world, no country or region can go it alone,” Ms Lagarde said in a speech at the International Finance Forum in the Chinese capital. “There are dark clouds gathering in the global economy. Ultimately, we could run the risk of what some commentators are already calling a lost decade.
“If we do not act together, the economy around the world runs the risk of a downward spiral of uncertainty, financial instability and a collapse in global demand,” she said.
Without bold action, the world might face worsening financial instability, high unemployment and a possible collapse of demand, and Asia should be on guard to counter the downturn, she said.
Asia was not immune to the problems blighting the euro zone, she said. “Whether it is the trade channel or whether it is the financial sector which can operate as a crisis accelerator, Asia needs to be prepared.”
She said the advanced economies had a “special responsibility” to bring back confidence and lift growth, while China should boost consumption and allow its currency to rise. So far she has held talks with China’s central bank governor Zhou Xiaochuan on the “global economic situation”, according to the People’s Bank of China.
Talks are likely to look at what contribution China will make to the European Financial Stability Facility, the bailout fund set up to provide support to the euro zone’s struggling economies.
Europe has been keen for Beijing to help beef up its rescue plans by investing some of its €2.26 trillion in foreign reserves, and the head of the fund, Klaus Regling, travelled to Beijing for talks about a possible contribution, but China has been cautious in its response.
Ms Lagarde was fresh from a visit to Russia, where she gave a similar warning against complacency. “We are all in it together and our fortune will rise or fall together,” she said.
She described as “a step in the right direction” plans by euro zone leaders and Group of 20 nations over the past month to increase a rescue package for Greece.
Meanwhile, China and India issued a joint statement after the fifth annual financial dialogue between the two countries, saying the global economy was in a “critical phase”.
“In emerging markets, where growth is relatively stronger, there are clear signs of a slowing as developments in advanced economies begin to weigh on these countries. In the face of these challenges, both sides recognised that strengthening of international policy co-operation is needed at this juncture.”
The IMF last month cut its Asian growth forecast for this year to an average of 6.3 per cent from its previous outlook of 7 per cent, because of the euro zone crisis and the US slowdown.
Asian growth has been hit by faltering demand from its big export markets and the March tsunami in Japan also hit production and exports around the continent.