Recovery “alarmingly uneven”

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At the recent IMF Spring Meetings, experts highlighted the discrepancies in the growth rates of countries around the world. PwC, who six months ago coined the term “two-speed economy”, has revised its analysis to include a third speed lane. “Whilst the eurozone continues to focus on crisis management and Japan puts the finishing touches to its reforms, the US appears to be breaking away from the pack and gradually returning to trend growth,” PwC says in its monthly Global Economy Watch.

According to PwC “emerging and developing economies continue to be in the ‘fast lane’”. According to their internal analysis BRIC countries will continue to grow at least three times as fast as the G7, “the release of the first quarter GDP data for China confirmed our view that it will continue to grow slightly faster than the 7.5 percent government target rate (actual growth was 7.7 percent year on year), whilst gradually rebalancing from investment to consumption-led growth.”

Christine Lagarde suggested in a speech at the Economic Club of New York that the US and Switzerland were ‘on the mend’, creating the medium growth rate bracket. PwC estimates that the US will grow around two percent in 2013, buoyed by sustained job creation.

Lagarde has warned that this level of imbalance is “starker than ever.”

“In far too many countries, improvements in financial markets have not translated into improvements in the real economy – and in the lives of people,” she said. “We are now seeing the emergence of a ‘three-speed’ global economy—those countries that are doing well, those that are on the mend, and those that still have some distance to travel.”

Countries in the eurozone continue to struggle, as the banking industry is still not fully repaired, and vital fiscal and monetary reform has failed to materialise. “Monetary policy is ‘spinning its wheels’—meaning that low interest rates are not translating into affordable credit for people who need it,” said Lagarde. “The plumbing is clogged up, and we are seeing more financial fragmentation.

“So the priority must be to continue to clean up the banking system by recapitalizing, restructuring, or, where necessary, shutting down banks. The oversize banking model of too-big-to-fail is more dangerous than ever. We must get to the root of the problem with comprehensive and clear regulation, more intensive and intrusive supervision, as well as frameworks for orderly failure and resolution, including across borders, and with authorities empowered to oversee the process,” she added.

During the Spring Meetings Lagarde emphasised that job creation should be a priority for policymakers in order to combat the deep growth inequality plaguing Europe. “Every policy maker is keen to develop jobs and to respond to the demands of the young population in particular,” she said. All job creating policies should be considered, “starting with growth and good polu mix which relies on not just one policy but a set of policies that ill include fiscal consolidation at the right pace, structural reforms and monetary policy, which provides the breathing space,” she added.

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