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Advanced economies could have expanded 5%, if productivity hadn’t tanked: IMF's Lagarde

International Monetary Fund (IMF) Managing Director Christine Lagarde.
Saul Loeb | AFP | Getty Images
International Monetary Fund (IMF) Managing Director Christine Lagarde.

IMF Managing Director Christine Lagarde said Wednesday advanced economies could be about 5 percent higher today, if productivity had maintained its pre-2008 crisis trend.

"That would be the equivalent of adding a country with an output larger than Germany to the global economy," Lagarde said at a panel in Brussels on Wednesday, according to prepared remarks.

IMF figures show that there's been a significant deterioration of productivity growth – a key indicator of higher incomes and rising living standards - over the past decade. In measured output per worker and total factor productivity – which can be seen as a measure of innovation, advanced economies have seen productivity growth dropping to 0.3 percent, from a pre-crisis average of about 1 percent, Lagarde said earlier this month.

Apart from low productivity growth, there are other downside risks to the global economy. Lagarde warned that there are increasingly more doubts about the benefits of economic integration, mainly in developed countries – which is the very "architecture" that has boosted their economies for the past seven decades.

"We see a global economy that has a spring in its step—benefiting from sound policy choices in many countries in recent years," she said.

"At the same time, there are clear downside risks: political uncertainty, including in Europe; the sword of protectionism hanging over global trade; and tighter global financial conditions that could trigger disruptive capital outflows from emerging and developing economies," the former French finance minister said.

The biggest political concern in Europe is the French presidential election, which has its first round on April 23rd. The rising support for extremist parties and expectations of historic abstention levels make its outcome very uncertain.

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