WASHINGTON – International Monetary Fund Managing Director Christine Lagarde warned Thursday of an economic slowdown in Japan and the eurozone and increased geopolitical risks to the global economy linked to the recent terrorism incidents in Paris.
“Despite the boost from (cheaper) oil prices and despite stronger U.S. growth, we see the global recovery continuing to face a very strong headwind,” Lagarde said in a speech in Washington.
The euro area and Japan could remain stuck in low growth and low inflation “for a prolonged period,” Lagarde said.
The concern “would make it even harder for many euro area countries to reduce very high unemployment and excessive public and private debt and would as a result raise the potential risk of recession and deflation,” she said at a think tank event.
The IMF chief made the remarks before the Washington-based lender releases its semiannual World Economic Outlook report next week.
Lagarde said promoting freer trade is important as part of structural reforms that lead to economic growth.
She said that 2015 could be “a make-or-break” year for the envisioned Trans-Pacific Partnership free trade initiative involving the United States, Japan and 10 other countries.
Lagarde, from France, said the global economy still faces various geopolitical risks, including the Ukraine crisis and the shooting spree at the offices of Charlie Hebdo, a satirical weekly, in Paris last week.
The massacre in France and a spate of violent incidents in Nigeria and Pakistan “are only the latest actions of forces that are fundamentally opposed to what we here in this room believe in,” she told the event.
Lagarde also said some emerging economies will have to deal with the risks of the strengthening U.S. dollar, higher global interest rates and more volatile capital flows.