Christine Lagarde, the head of the International Monetary Fund (IMF) has warned that the global economic crisis is affecting the growth of economies in the emerging economies.
She also warned that unemployment is a major problem in the eurozone and that uncertainty over both the US and European debt crisis was hindering policymaker’s ability to take effective decisions to enable business and industry to invest and create new jobs.
Ms Lagarde called for decisive action from governments to end uncertainties in the global economy that are causing “terrifying and unacceptable” levels of unemployment.
Ms Lagarde said that the global economy needed “courageous action on behalf of our members” and warned that the uncertainty “is deterring investors from investing and creating jobs. We need action to lift the veil of uncertainty.”
Earlier this week, the IMF warned that the global economic recovery was getting weaker and it cut its forecast for UK economic growth for both 2012 and 2013.
Ahead of a meeting between the IMF and the World Bank in Tokyo, Ms Lagarde told a press conference: "Whether you turn to Europe, to the United States of America, to other places as well, there is a level of uncertainty that is hampering decision makers from investing, from creating jobs."
The major concern globally has been the situation in Europe. The ongoing debt crisis has dented consumer confidence and also led to less demand for imports from developing economies such as China and India which has hurt growth in these export-dependent countries.
Ms Lagarde said that the eurozone had introduced the European Stability Mechanism which should stop the euro debt crisis from worsening. However, she does not predict a quick solution.
Ms Lagarde said: "In terms of speed, the bad news is that for it to actually operate there will be a legislative and often parliamentary process for the fund to effectively work."
Ms Lagarde also reiterated the IMF’s position on austerity. She advised government’s not to follow specific debt reduction targets but to focus on introducing new measures to encourage growth.
She said: “We don’t think it’s sensible to stick to nominal targets. We think it’s much more sensible to apply measures and let the stabilisers operate.”
Ms Lagarde’s comments will ease the pressure on the UK government which is on course to miss its own deficit reduction targets but to a degree contradict the economic message coming from this week’s Conservative Party Conference, that austerity and an attempt at deficit reduction will be the ongoing focus.