Interview: Less but better growth for China: IMF chief economist (2)

NO EASY GAINS ANYMORE

The IMF lowered its projection of the global economic outlook to a growth of 3.3 percent this year and 3.8 percent for 2015, as it sees the world still grapples with the legacies of the global financial crisis and the emerging problem of lower potential growth.

Blanchard said the world economy is not expected to be completely back to normal until 2016, at best, as the impacts of the global financial crisis is much bigger than the Great Depression in the 1920s so that it will take a long time to recover.

To boost growth, he said monetary policy is only part of the solution rather than "the magic bullet". Countries should look for ways to shore up the slowing productivity growth.

He also said the global financial sector is in a much better shape after the crisis. The United States increased household saving and pared down the budget deficits, while China also trimmed down its trade surplus. The imbalances between the U.S. and China is not completely gone but largely addressed.

The IMF raised the growth projection for the U.S. economy by 0.5 percentage point to 2.2 percent this year. The United States is among the few leading advanced economies that the IMF foresees a brighter outlook in the World Economic Outlook.

Blanchard said the U.S. economy is in the process of a full-fledged recovery, but the Federal Reserve is still looking at the numbers day by day. "When it feels the U.S. economy has reached the potential output level, they will start increasing the interest rate."

He warned that emerging markets will face tougher global financial conditions when this happens, as capital flows will likely go back to the U.S. from the emerging markets.

"It's going to be tougher for some emerging market countries, but the main issue is the decreasing potential growth. In many countries, the easy gains for growth are getting harder," he said.