While all signs point to a firming U.S. economy, Treasury Secretary Jacob Lew painted a more uncertain picture Friday for the global growth outlook.
In a statement to the International Monetary Financial Committee meeting, held ahead of weekend meetings of the World Bank and International Monetary Fund, Lew voiced concern about global trends.
“The global economy is expected to strengthen somewhat this year, and this is welcome news following nearly six years marked by economic and financial volatility, uncertainty, and adjustment. However, global economic activity remains uneven, and downside risks are still present, including new geopolitical risks,” Lew said.
A top concern, he suggested, is that inflation is too low in Europe and there is insufficient demand for goods and services.
“More needs to be done to support growth and guard against further disinflation in the euro area,” the secretary said. “This will help reduce the burden of adjustment in the periphery and promote demand rebalancing in the euro area – but will also benefit Europe’s individual member countries because it will boost growth, investment, and employment at home.”
Lew praised Japan for aggressive steps to reverse two decades of entrenched deflation, or falling prices, but called on the Asian power to continue pursuing structural reforms that will put its economy on stronger long-term footing.
Pressing an issue that he and other Treasury officials have raised of late, Lew called on China to stick to its earlier plans and allow its exchange rates to increasingly be set by market forces and not central planners.
“Rebalancing the Chinese economy will require further exchange rate appreciation so that consumption, rather than investment, drives domestic demand,” the secretary said. “It is critical that China demonstrate that they are committed to moving toward a market-determined exchange rate, and that progress continues on a steady basis. This is very important for preserving a level playing field for world trade.”
On the subject of Russia’s tense standoff with Ukraine, Lew praised the IMF for its role as a “first responder” for the troubled Ukrainian economy.
“The United States supports the proposed elements of an IMF program for Ukraine, including maintaining a flexible exchange rate, strengthening the banking system, stabilizing fiscal policy, increasing energy tariffs, and implementing structural reforms to improve governance and the business climate,” he said. “The IMF program represents a multi-year commitment to stability and reform and we are encouraged by the Ukrainian authorities’ resolve to take the necessary steps so secure this support.”