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IMF boss Lagarde warns economy ‘too weak for comfort’

Christine Lagarde warned that without “brave action” the world could fall into a “low growth trap”.

She said the global economy would grow by more than 3% this year and next, but that market volatility and tensions in Ukraine posed risks.

Ms Lagarde also urged more action to tackle low inflation in the eurozone.{{more}}

Low inflation in the eurozone has been caused by the presence of a greater level of spare capacity in the economy, meaning it is not growing to its full potential due to underinvestment, ompared to the US or UK.

The Bank of England believes the amount of spare capacity in the UK is equal to about 1% to 1.5% of overall GDP.

The strength of the euro relative to the pound and the dollar since 2012 has also lowered the cost of imports, forcing the price of goods to come down.

That has meant inflation in the eurozone is currently running at 0.5%, compared to 1.7% in the UK and 1.1% in the US.

The fear attached to lower inflation is it could harm the eurozone’s nascent economic recovery, weakening consumer demand for goods and services as household’s put off spending believing prices will continue to fall.

Low inflation also means that governments and businesses find it more difficult to repay their debts.

Ms Lagarde called on the European Central Bank (ECB) to pursue “more monetary easing, including through unconventional measures”.

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