IMF chief warns of risks to recovery

The International Monetary Fund (IMF) chief Christine Lagarde speaks during a session at the World Economic Forum (WEF) in Davos January 25, 2014. [Photo/Agencies]

DAVOS - The International Monetary Fund (IMF) chief Christine Lagarde on Saturday said that the recovery of the world economy is a consolidation process and people should be aware of the risks.

Speaking at a session at the World Economic Forum Annual Meeting, Lagarde said the recovery happened at different rates in different areas and it is in consolidation process.

Apart from the old risks which Lagarde categorized as the financial market reforms yet to be finished and unbalanced growth, Lagarde also mentioned some new risks including the tapering in the United States and the possibility of deflation.

According to Lagarde, the possibility of deflation is low, but "the deflation risk would occur if it is a shock to those economies that are now going at low inflation rates and certainly way below targets."

If low inflation stays for a period of time, the risk is that longer term expectations will be anchored at a much lower level, said Lagarde.

In response, the European Central Bank (ECB) president Mario Draghi said the inflation in the euro zone is going to stay on a very low level for a protracted time.

According to Draghi, the ECB is aware of the risk of deflation if the low inflation lasts for a long time. Meanwhile, he reiterated that there is no deflation in the euro zone and the ECB is "ready and willing to act if needed."