World economy not yet flying on all engines: IMF chief

DAVOS - The world economy is underperforming and more work needs to be done for a strong and lasting recovery, chief of the International Monetary Fund (IMF) said Wednesday.

"The world economy is not yet flying on all engines - and is likely to remain underpowered next year as well," Christine Lagarde said in a statement posted on the website of the ongoing World Economic Forum 2014 Annual Meeting.

According to the IMF's latest forecast, the world economy would expand by 3.7 percent in 2014, following a growth of 3.3 percent in 2013.

Lagarde said the world economy was still below its potential growth of around 4 percent, and countries should deepen structural reforms and strengthen international collaboration.

"A strong and lasting recovery that lifts all countries and all peoples requires policymakers to press ahead on all fronts - fiscal, structural, and financial. At the same time, the international community must reinvigorate its efforts to strengthen cooperation through the G-20, the IMF, and other actors," she said.

The director pointed out that stagnation and deflation risks still exist in advanced economies, despite their recent strong performance due to unconventional monetary policies and fiscal stimulus. Central banks should return to more conventional monetary policies only when robust growth is firmly rooted.

In emerging markets, which accounted for three quarters of global GDP growth during the past half decade, policymakers should be wary of financial excess in responding to slower demand, and focus on strengthening financial regulation and re-establishing fiscal room for maneuver, she said.

Noting that many countries faced common problems such as high debt, fiscal and trade imbalance, unsustainable growth models, lack of efficient financial regulations, Lagarde said these challenges need to be addressed to ensure future prosperity.

As billions of people have rising aspirations - to find jobs, to rise out of poverty, and to join the global middle class, "in 2014 we need to take the steps that would help make this dream a reality," she said.