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Although downside risks have diminished overall, lower-than-expected inflation poses risks for advanced economies, there is increased financial volatility in emerging market economies, and increases in the cost of capital will likely dampen investment and weigh on growth. Advanced economy policymakers need to avoid a premature withdrawal of monetary accommodation. Emerging market economy policymakers must adopt measures to changing fundamentals, facilitate external adjustment, further monetary policy tightening, and carry out structural reforms.
The report includes a chapter that analyses the causes of worldwide decreases in real interest rates since the 1980s and concludes that global rates can be expected to rise in the medium term, but only moderately. Another chapter examines factors behind the fluctuations in emerging market economies’ growth and concludes that strong growth in China played a key role in buffering the effects of the global financial crisis in these economies.
Meanwhile Reuters reported that IMF's Managing Director Christine Lagarde said that the European Central Bank should ease monetary policy to combat the risk of "low-flation" that could crimp eurozone output and consumer spending.
She said the world's economy should pick up pace above 3 per cent this year and next. However, she warned that the recovery from the global financial crisis remained weak and that a prolonged period of sluggish growth was a risk, citing slow price growth in the eurozone, geopolitical tensions in places like Ukraine, and market volatility as factors that could drag on growth in the short-term.