The critical role of the United States in the Global Economy.
The recovery gaining strength here is good news for America—and good news for the world. Admittedly, U.S. growth will be more modest this year than we would want—still well below 2 percent. Even so, it should accelerate significantly next year, by about one percentage point.
Indeed, the fundamentals of the U.S. economy have been improving gradually. Households have lowered their debt and benefited from the recovery in house prices and the strong performance of the stock market. The housing sector is looking brighter, with ample potential for construction activity to pick up further. The private sector is yet again proving to be the primary engine of growth and job creation—and the main reason for weak growth this year is the very large ongoing fiscal adjustment, a theme I will return to shortly.
Job creation is fundamental for local or global recovery. The latest labor indicators in the U.S.
have been mixed. The unemployment rate has declined to 7.3 percent in August, but the participation rate has continued to decline, and employment remains well below pre-crisis levels. So the issue of jobs remains paramount.
So what should U.S. policymakers do?
First, fix public finances.
it would have been more advisable to have a slower pace of fiscal consolidation in the short run without using the blunt instrument of sequester—more action is needed to reduce long-run pressure on the budget. This includes addressing entitlement spending and higher revenues.
Second, the exit from unconventional monetary policies should be gradual, linked to progress in the recovery and employment, and that it should be clearly communicated and in a dialogue.
Third, finish the financial reform.
Progress has been done,in terms of new capital and liquidity standards for banks.
But policymakers need to turn their attention to the outstanding danger zones, especially derivatives and shadow banking.
Financial sector reform, of course, is not the sole responsibility of the United States. It needs to be tackled in many countries and regions, ideally in a coordinated and consistent way to ensure the healthy function of the entire global financial system.
This brings me back to the point of global connections.
The United States plays a unique role in the global economy. I am thinking, for instance, of global trade—of which the U.S. accounts for 11 percent. The U.S. also represents 20 percent of global manufacturing value-added. I know that you recognize the potential of an even bigger market.
America’s global financial ties are even deeper. Foreign banks hold about $5½ trillion of U.S. assets, while American banks hold about $3 trillion of foreign claims. Meanwhile, close to half of the S&P500’s sales originate from foreign operations.
These interconnections have great benefits for the United States. But they are not without risks—two-way risks—and we saw some of these play out during this crisis.
We all remember, five years ago, how the collapse of one U.S. bank ushered in a harsh new reality across sectors, across countries, and across the world. As those tensions traveled across the Atlantic, for example, they exposed tensions in Europe.
Considering that 20 percent of U.S. exports are destined for Europe, and that more than half of U.S. overseas assets are held in Europe, you clearly have a large stake in the recovery there.
And yet, despite the risks, I know that you are also deeply aware of how much can be gained from engaging with the rest of the world.
The recovery of the Euro Zone and the Global economy does matters for U.S. Economy.
As the needs of our member countries have changed over time, so too the IMF has refined, repurposed and restocked its toolkit.
During this crisis, this has included a significant increase in our financial support, with over $300 billion in loans in over 50 countries—not just in Europe, but also in many other parts of the world, including in Africa and other low-income nations. We also introduced more flexible types of support that act as insurance for crisis prevention and have helped countries like Colombia, Mexico, and Poland.
Above all, the IMF has given much greater emphasis to global interconnections in its analysis—in particular, economic spillovers between countries, and also the critically important financial sector. To be effective into the future, we must continue to evolve and anticipate what lies ahead.
What I have tried to describe today is a journey. A journey that the United States and the IMF have taken hand-in-hand. As our leading shareholder and steadfast partner for nearly 70 years, we have worked together for a mutual goal of global stability and shared prosperity.
The U.S. Chamber of Commerce plays a vital role in this journey. Your focus on trade, on openness, on jobs, and on growth is essential—to helping the U.S., to helping the world, and to helping the IMF do its job.
Speech of Christine Legarde at the U.S. Chamber of Commerce
