Sacrificing growth for the sake of austerity could put the entire world economy in jeopardy, the head of the International Monetary Fund has told global financial leaders.
In a forward-looking speech today to fellow financial leaders at the IMF and World Bank annual meeting in Tokyo, IMF chief Christine Lagarde warned against backsliding on reforms needed to prevent future financial crises.
"The first priority, clearly, is to get beyond the crisis, and restore growth, especially to end the scourge of unemployment," Ms Lagarde said.
That requires monetary policies that encourage banks to lend, and the "right pace" of adjustments in spending. Debts must be brought down in the medium term, and structural reforms are needed to sustain growth in the long term, she said.
"Let us not delude ourselves. Without growth, the future of the global economy is in jeopardy."
The IMF has scaled back its global growth forecast for 2012 to 3.3 per cent from 3.5 per cent, and has warned that even its dimmer outlook might prove too optimistic if Europe and the United States fail to resolve their crises.
The fund said today that economic growth in the Asia-Pacific region slowed to 5.5 per cent in January-June largely because of sluggishness in Europe and the US It also noted weakness in China and India, whose dynamism had helped counter weakness elsewhere.
"There are big challenges as well. We must not get carried away," she said. "The global recovery is still too weak. Job prospects for untold millions are still too scarce, and the gap between the rich and the poor is still way too big."
Ms Lagarde has urged that European creditors give Greece an extra two years to meet austerity targets required to get and continue receiving loans, after nearly defaulting on its mountain of debt.
Both Ms Lagarde and Jim Yong Kim, president of the World Bank, stressed that without equality, growth would be unsustainable.