Merry Christmas and happy new financial crisis.

It wasn't the cheeriest of pre-Christmas speeches but David Lipton, first deputy managing director of the International Monetary Fund, was clearly not in a festive mood.

His message was clear.

History suggests we are due for another financial crisis and right now the world is no shape to cope with one.

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"I see storm clouds building, and fear the work on crisis prevention is incomplete," he told the Bloomberg Global Regulatory Forum in London last night.

With interest rates still low, central banks simply don't have the firepower they did in 2008 to deal with a deep recession, he argued.

Trillions of dollars worth of quantitative easing cash (which central banks effectively printed to get though the GFC) has yet to be reabsorbed - limiting that option as an emergency response.

Meanwhile, public debt has been building in many countries - including the US - seriously limiting the option of using fiscal stimulus to deal with a crisis.

For two years, the IMF had called on governments to put in place policies aimed at just that goal—as we have put it, "fix the roof while the sun shines," he said.

"It is essential they do what they can now to address vulnerabilities and avoid actions that exacerbate the next downturn," he said.

Lipton criticised China, the US and Europe for economic policies and politics that were not addressing risk.

The US was running up debt to stimulate its economy at a time when it did not need it.

China needed to reform its trade policies to reflect the size and influence of its economy on the world. For example, it needed to address the way it enforced intellectual property law.

Europe was being hamstrung by political infighting and by the vested interests of national regulators.


With little evidence of progress on a national level the world now needed to work together to formulate a multilateral strategy, he said.

IMF Managing Director Christine Lagarde had called for a "new multilateralism," he noted.

"One that is dedicated to improving the lives of all this world's citizens. That ensures that the economic benefits of globalisation are shared much more broadly. That focuses on governments and institutions that are both accountable and working together for the common good."

Perhaps the most depressing part of this grim warning was just how unrealistic the idea of a multilateral solution looks right now.

Looking around the foreign news wires there is scant evidence that the world is even vaguely heading in that direction.

The two economic superpowers, China and the US are stuck in a trade war that threatens to spill over into a cold war.

Britain is paralysed by Brexit gridlock. France is battling a populist uprising with riots in the streets.

Political consensus looks increasingly fragile in Germany as Chancellor Angela Merkel steps away from power.

If there's something positive for New Zealanders to take from all this it is that we have taken some steps to "fix the roof" since 2008.

Our past three finance ministers have stayed focused on reducing core crown debt.

While the Reserve Bank hasn't made much progress on lifting interest rates it has overseen an improvement in financial stability.

Credit growth has eased (although private debt levels remain precarious) and local banks are funding much more of their debt locally than they did in 2008.

The official outlook for New Zealand's economy remains solid with GDP growth expected to stay safely north of 2.5 per cent.

But these kind of forecasts will mean little if the world heads into a serious financial crisis.

This IMF speech is just the latest reminder that we may need to batten down the hatches in 2019.

- The International Monetary Fund (IMF) is an international organisation consisting of 189 countries. Founded in 1945 it aims to promote global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.