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Concerted action critical in "new phase" of global recovery

08-29-2011 10:36 BJT

WASHINGTON, Aug. 27 (Xinhua) -- Global leaders Saturday called for joint efforts to shore up the sagging economic recovery, as the world economic growth has entered a critical and erratic phase.

Downside risks to the global economy are rising, and developments this summer have indicated that the global economy is in a "dangerous new phase", International Monetary Fund (IMF) chief Christine Lagarde warned on Saturday.

The world risks seeing the fragile recovery derailed, so "we must act now", Lagarde cautioned in addressing the Federal Reserve Bank of Kansas City Economic Symposium held in Jackson Hole in the U.S. State of Wyoming.

The newly-appointed IMF managing director urged for decisive action to bolster the confidence that is crucial for restoring and re-balancing global growth.

"We are not without options. We know what needs to be done to support growth, reduce debt and prevent further financial crises," said Lagarde, adding that the world needs a new approach to implement a comprehensive plan in a coordinated manner based on bold political action.

The White House said U.S. President Barack Obama and German Chancellor Angela Merkel discussed the global economic situation and eurozone crisis by phone on Saturday and pledged efforts to boost the global economic growth.

"The two leaders agreed on the importance of concerted action, including through the G20, to address current economic challenges and to spur growth and job creation in the global economy," according to a White House statement.

With economic growth easing pace on both sides of the Atlantic Ocean and recent market turbulence, experts held that timely policy support is critical to bolster the economic growth in the near and longer term.

Despite all the ups and downs of recent years, the key challenge remains as it has always been -- to create a "strong, sustainable, balanced, non-inflationary" growth, European Central Bank (ECB) President Jean-Claude Trichet said at the annual gathering of central bankers and economists in Jackson Hole.

Lagarde contended that the fundamental problem is that in these advanced economies, weak growth and weak balance sheets of governments, financial institutions, and households are feeding negatively on each other.

"If growth continues to lose momentum, balance sheet problems will worsen, fiscal sustainability will be threatened, and policy instruments will lose their ability to sustain the recovery," she said.

Trichet held that structural reforms including training, improving job matching, providing flexibility and incentives for job creation and innovation, remain the best policy options for encouraging well-balanced growth.

Lagarde held that while fiscal consolidation remains an imperative, macro-economic policies must bolster growth, while fiscal policy must navigate between the "twin perils of losing credibility and undercutting recovery."

The precise recovery path is different for each nation, noted Lagarde, adding that "to meet the credibility test, each country needs a dual focus: a primary emphasis on durable measures that will deliver savings tomorrow which, in turn, will help to create as much space as possible for supporting growth today."

Editor:Wang Xiaomei |Source: Xinhua

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