By Ian Talley
Six years after tackling the global financial crisis, the
world's top economic policy makers are struggling to exit
crisis-management mode and lift growth out of a long-term funk.
Troubles including low inflation, heavy debt loads, high
unemployment and financial turmoil have dogged the global economy
for years, keeping growth hovering at modest levels.
Those strains, including a potential default in Greece and
emerging threats such as a deeper slowdown in China, are putting
officials back on high alert as they brace for potential
trouble.
The world's finance ministers and central bankers, who gathered
in Washington through Sunday, sought to focus on hopeful signs such
as lower oil prices supporting advanced economies, including the
U.S. and Europe. But they noted that the world's overall growth
outlook remains largely unchanged--3.5% this year--as many nations
grapple with the legacies of the financial crisis.
"It's premature to talk about vibrant growth," said European
Central Bank President Mario Draghi.
Despite a tone of increasing urgency, officials acknowledged
they made little headway on an impasse over emergency financing for
Greece. And while finance officials warned that currency
volatility, low inflation and heavy debt levels threaten to
undermine the uneven global economic recovery, they offered no
consensus on how to fix the world's problems beyond more
central-bank stimulus and calls for economic overhauls in
individual nations to boost competitiveness.
International Monetary Fund Managing Director Christine Lagarde
warned that inaction by policy makers around the world risks
turning mediocre growth prospects into the new reality.
Many of the largest emerging markets are slowing or contracting,
even before the potential shock waves expected if the Federal
Reserve starts raising interest rates. Other risks--a potential
Greek default and eurozone exit, financial bubbles, the
Ukraine-Russia standoff and China's slowdown--are drawing
increasing worry as policy makers hoped to build momentum for
measures to finally boost global growth prospects.
"The world economy is not out of the woods," said AgustÃn
Carstens, Mexico's central bank governor and chairman of the IMF's
policy-setting committee. He said easy-money policies that policy
makers backed to help pull the global economy out of the 2009
recession have led to more risk-taking in financial markets than in
the real economy, an imbalance that made him uncomfortable.
The IMF has warned for years that countries must outline and
deliver on major overhauls of their economies to spur growth.
"It's a recurring theme," said Mexico's finance minister, Luis
Videgaray. "There's an overreliance in the world on monetary policy
and perhaps not enough effort on the structural front."
Several efforts by the Group of 20 largest economies to spur
growth have largely fallen by the wayside, victims of domestic
politics that make passing economic overhauls much tougher. "The
political processes required to address these issues are not
simple," said Mr. Videgaray. "That's why monetary policy is bearing
most of the burden."
Officials throughout their meetings tried to focus on the bright
spots. The U.S. economy is gathering steam, albeit slowly. The
eurozone is no longer flirting with recession. India's economy is
now outpacing China as the world's fastest-growing emerging market.
And cheaper oil prices could still goose growth in other major
energy-importing countries.
But a host of threats are still worrying investors, economists
and officials around the globe, keeping a lid on investment and
dimming growth prospects.
Global economic growth is roughly in line with the average of
the past three decades. That isn't strong enough to alleviate
dangerously high debt levels and high unemployment in many
countries. Meanwhile, potential growth--the ability of economies to
expand based on the available labor supply, know-how and capital,
is expected to fall through 2020, the IMF said.
Failure to enact longer-lasting structural overhauls after years
of relying on central bank stimulus could stunt growth further.
"The risk is that we will get a little more growth, but not much
more" through the ECB's efforts, said Italian Finance Minister Pier
Carlo Padoan, whose government is gradually implementing a revamp
of labor regulations, cutting taxes and other measures to increase
competitiveness. "And we need more growth. Let's not forget that we
have a huge unemployment problem."
Although the IMF says falling oil prices could create
stronger-than-expected growth, it also warns the likelihood of a
global recession had increased over the past six months.
Greece's worsening crisis is among the threats darkening the
outlook. A standoff between Athens and its creditors over emergency
financing is pushing the country perilously close to an exit from
the eurozone, a prospect that could catapult the region back into
financial and political turmoil.The eurozone has stronger defenses
it can muster to counter a complete meltdown in Greece's economy
than it did in 2012, the latest time the Mediterranean nation
risked sending the region into a tailspin.
"Having said that, we're certainly entering into uncharted
waters if the crisis were to precipitate," Mr. Draghi said on
Saturday.
Diverging interest-rate policies, which are inciting currency
volatility around the globe, also are worrying some officials.
Investors are plowing their cash into the U.S. currency as the
American economy strengthens and the Federal Reserve prepares to
raise interest rates for the first time in nearly a decade.
Combined with slowing growth in emerging markets and easy-money
policies in the eurozone and Japan that depreciate the euro and the
yen, demand for the dollar has sparked one of its strongest surges
in decades.
Those competing pressures are spilling out across the globe.
Officials from emerging markets said they were increasingly worried
their economies could get whiplashed.
Jon Hilsenrath contributed to this article.
Write to Ian Talley at ian.talley@wsj.com