IMF, World Bank meetings

"The global economy faces the prospect of prolonged subpar growth, accompanied by high unemployment and rising inequality," Christine Lagarde, head of the International Monetary Fund (IMF) said ahead of the autumn meetings of the IMF and the World Bank. In the fund's semi-annual Global Policy Agenda, Lagarde calls for more investment to counteract what she described as "the risk of a new mediocre," meaning the risk that global growth remains as uneven and low as it is at the moment.

While she still stressed the need for fiscal discipline, Lagarde made it clear that the IMF's focus had shifted towards investment and spending to boost economies across the globe, many of which were still reeling from the global financial crisis. Six years on, initial stimulus programs, followed by austerity measures and calls for structural reforms have not managed to drag the global economy out of the mire.

Therefore, Lagarde argues, "a much higher premium needs to be put across the membership on policies aimed at decisively raising today's actual and tomorrow's potential growth." She cites "more growth-friendly fiscal polices" that would "support job market reforms."

In particular, the IMF demands more investment in infrastructure, which Lagarde told reporters in Washington "can be a good way to support growth in the short term by putting people to work...but can also impact on the supply side in the medium term by facilitating and accelerating value down the road."

Loosen the pursestrings

The IMF urges advanced economies like the US and Germany, in particular, to loosen the pursestrings "where gaps can be clearly identified." Germany and China - both export-oriented economies with big trade surpluses - have been asked to boost demand at home "even as fiscal consolidation and structural reforms facilitate adjustment in deficit countries," according to the Global Policy Agenda. The German economy - Europe's largest and the eurozone's growth engine- has been showing signs of weakness recently, raising concern among other eurozone nations.

German Finance Minister Wolfgang Schäuble, who is one of the fiercest defenders of fiscal discipline in Europe and who is aiming for a national budget without any new debt in 2015, reacted by saying it would be "foolish" to deviate from the eurozone's current focus on reducing member states' budget deficits. He even said with regard to boosting public investment that there wasn't "much in it" for the economy.

But Schäuble was quick to point out that he intends to boost investment but, crucially, without increasing levels of debt. "Where there are concrete opportunities for investment, we will finance them," he said at a G20 meeting in Washington on Thursday. Bundesbank President Jens Weidmann chimed in, saying that there was no need for a "flash-in-the-pan" approach to investment. Weidmann and Schäuble both said more investment was necessary but that it would have to be targeted and selective.

Meanwhile, Germany's leading economic institute published their autumn report on Thursday, calling Schäuble's "black-zero" concept of balancing the national budget a "prestige project." Like the IMF, it changed its tune and urged the government to invest more, with a focus on education. Germany has also been facing sustained opposition to its austerity course by France and Italy, which believe that a focus on stimulus will better serve their economies.

Emerging markets fund

Meanwhile, the World Bank has launched a "Global Infrastructure Facility" to fund infrastructure projects in developing countries, which currently spend $1 trillion (800 billion euros) a year on infrastructure, according to World Bank figures.

"Our partnership offers great promise for tackling the massive infrastructure deficit in developing economies and emerging markets, which is one of the fundamental bottlenecks to reducing poverty and boosting shared prosperity," World Bank President Jim Yong Kim said at Thursday's launch in Washington.

To maintain growth rates in developing nations, another $1 trillion a year through 2020 are needed, Kim said. He also stressed that the new facility would closely monitor the quality of the projects it hopes to fund. The World Bank has teamed up with partners from the financial services industry, such as Blackrock, Citibank and The European Investment Bank (EIB) among others to fund the facility.