International Monetary Fund (IMF) Managing Director Christine Lagarde spoke with FOX Business Network’s (FBN) Liz Claman about the United States recovery and her outlook on the global economy. Lagarde commented on the Gross Domestic Product (GDP) for 2014 saying, “What happened, is that Q1 was dreadful” and that “Q1, predominantly because of weather issues, was very bad for growth.” Lagarde also discussed the United States tax system saying, “We believe that a tax reform is long overdue and we have little illusion that it will take place, because it’s highly controversial, because it’s politically charged, and maybe this is not the best time.” When asked if IMF will change their forecast due to the situation in Iraq, Lagarde said, “we believe that the oil shock that could result from the current tension in Iraq in particular might affect the economy.  But for that to happen, the shock would have to be rather deep and rather long-lasting.” Lagarde also commented on whether there is a housing bubble saying, “There is a concern out there, and clearly the private sector has to take on the risks.”

christine lagarde

 

Christine Lagarde on why the IMF revised their 2014 GDP forecast:

“Well, what happened, is that Q1 was dreadful.  Q1, predominantly because of weather issues, was very bad for growth.  The U.S. turned into negative territory and we are not yet in the bottom of it.  It was scheduled to be minus 1; it could be more than that. So the importance of Q1 is critical for the whole year, 2014, which is why we have revised down to 2 percent for 2014.  But we believe, given the employment numbers, given the industrial indices that we are seeing, that Q2, Q3, Q4 should come out really strongly, particularly due to the fact that a lot of inventories have been drawn down in Q1. So the – our forecast is revise downwards, but our expectations are quite high and positive for the coming months.”

Christine Lagarde on the U.S. tax system:

“We believe that a tax reform is long overdue, and we have little illusion that it will take place, because it’s highly controversial, because it’s politically charged, and maybe this is not the best time. But our job is to say what we think would be right, and we believe that the tax reform is long overdue.  Why?  Because it has too many exceptions, exemptions, loopholes, here and there.  Because it’s too complex in the main.  And because it brings very little revenue to the table.”

Christine Lagarde on whether the Iraq situation could change the IMF forecast on GDP:

“You know, when we look at big geopolitical risks of that nature, we have to look at the consequences on the U.S. economy.  And we believe that the oil shock that could result from the current tension in Iraq in particular, might affect the economy.  But for that to happen, the shock would have to be rather deep and rather long-lasting, which is certainly not what we hope, but we have to consider all the options.  And that could happen.”

Christine Lagarde on how closely she is looking at both Iraq and Russia-Ukraine:

“We’re looking at all geopolitical risks around the planet, because they might have economic consequences anywhere in the world, given that economies are all interconnected. So we’re looking at what happens in Ukraine; we’re looking at what’s happening currently in Iraq.  We’re looking at potential risks in other places as well.”

Christine Lagarde on whether she is concerned about Ukraine possibly needing more involvement from the European Union:

“We have approved a program to help Ukraine.  We have authorized an overall program of $17.3 billion, a small portion of which has already been disbursed.  And we very much hope that the commercial relationships between Naftogaz in Ukraine and Gazprom in Russia can be settled appropriately so that there is no uncertainty and the relationship can continue going forward. It’s important for Ukraine.  It’s important for the Europeans.  It’s important for Russia, as well.  The level of uncertainty that we have at the moment in relation to that is not good.”

Christine Lagarde on whether inside activity in Washington, D.C., specifically gridlock, can hurt the U.S. economy:

“We very much hope that it doesn’t happen again.  Clearly, the trepidation about the budget, the trepidation about the debt ceiling, it could arise yet again in 2015.  But if we learn anything from what has happened in 2013 and early 2014, it’s that it should not be repeated.  It’s unnecessary uncertainty right at the time when the economy’s picking up, when the recovery’s firming up, and when people are getting back to work. There’s still so much to be done for, you know, to encourage people to return to the job markets, to consolidate growth, that’s — we can do away with that unnecessary self-induced instability.”

Christine Lagarde on the Federal Reserve:

“We think that the Fed is doing a very good job of communicating, but we also see uncertainty around the economic numbers.  We are revisiting and revising downwards.  We see uncertainty on questions about the employment/unemployment numbers.  And on the other hand we see a lot of apparent certainty on the part of the markets.  They seem to be quite confident that numbers are going in that direction, that interest rates will start tightening, and so on and so forth.”

Christine Lagarde on whether we are seeing a housing bubble:

“There is a concern out there, and clearly the private sector has to take on the risks.  And they should not be an overload of risks on those two public institutions.  So we very much hope that, going forward, by a combination of reinforced, you know — both supervision as well as availability of credits, the housing market can be made as strong but also as self-sufficient as possible.”

Christine Lagarde on minimum wage:

“Very low minimum wage and a lot of poor people who are working people.  There are about 50 million Americans that are below poverty line.  So something needs to be done on the job front. EITC increased; minimum wage increased as well.  We believe that the combination of the two, not one or the other, combination of the two, will actually help kick start support of the growth going forward.”

Christine Lagarde on raising minimum wage:

In the short term, there might be some jobs lost.  But when you look at the significant increase of income that poorly paid people will have, we believe that, in the long run, it will be net positive for the economy and for employment as well. Now, that’s on the jobs and growth front.  We also believe that, on the fiscal front, measures have to be taken.”


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