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January 26, 2013

Davos Summit Ends with New Warnings on Global Economy

International financial leaders have wrapped up the World Economic Forum meeting in Switzerland with warnings that much remains to be done to stabilize the global economy.

International Monetary Fund chief Christine Lagarde, speaking Saturday in Davos, said the IMF outlook for a "fragile and timid" recovery depends on leaders in the top economies of Europe, the United States and Japan making "the right decisions."

She warned against complacency among the 17 European nations using the euro, while noting that two major European economies, Italy and Spain, have survived the worst of the European crisis.



"And clearly, two major players have recovered significantly in terms of access to financial markets and financing -- Italy and Spain -- one of which, the former, [Italy] will be facing a political election come February. So it is not a stable landscape and walk in the park for the year 2013, but it's a lot better than what they have had in 2012."



Lagarde also voiced interest in dramatic policy moves by Japan this week to stimulate its stalled economy by doubling its inflation target to two percent -- a move similar to that undertaken in recent years by the U.S. central bank -- the Federal Reserve.



"We are very interested by those [Japanese] policies. We certainly would like them to be complemented -- just as in the United States -- with a mid-term plan that includes how the debt will be reduced going forward."



Japan has so far brushed aside criticism that aggressive Bank of Japan policy changes could trigger competitive currency devaluations.

Saturday, Japan's Minister of Economic and Fiscal Policy, Akira Amari, defended the inflation goals and denied the existence of a deliberate policy to drive down the value of the yen. He said the focus of the new policies is on ending deflation and said it is up to markets to decide currency exchange rates.