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IMF’s Lagarde Says Markets ‘Perhaps Too Upbeat’ on Europe

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July 18 (Bloomberg) -- International Monetary Fund Managing Director Christine Lagarde said Europe’s rebound from a fiscal crisis and recession may have made investors too optimistic about a region that still faces elevated unemployment and high public debt.

“The good news is that the European economy is recovering from the crisis,” Lagarde said in prepared remarks of a speech today in Paris. “Confidence is improving and financial markets are upbeat. Perhaps too upbeat.”

The growth rate in the 18-nation euro region is forecast by analysts in a Bloomberg survey to be 1 percent this year, less than half of the pace in 2007 before the financial and debt crisis started. That’s not stopping investors, who have returned to the region’s fixed-income, currency and derivatives markets in search for higher returns.

In her prepared remarks, Lagarde didn’t specify which markets might be overly confident. She called on European officials to “tackle structural road blocks” that inhibit growth and to pursue policies that lead to more efficient markets.

“Stubbornly low inflation can undermine the recovery,” said Lagarde, who spoke at an event at the Robert Schuman Foundation which German Finance Minister Wolfgang Schaeuble was also set to attend. “Monetary policy should remain supportive until private demand has fully recovered” and the European Central Bank “has achieved its price stability objective,” she said.

To contact the reporter on this story: Sandrine Rastello in Washington at srastello@bloomberg.net

To contact the editors responsible for this story: Chris Wellisz at cwellisz@bloomberg.net Brendan Murray, Gail DeGeorge

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