ANKARA (Reuters) - Credit flow needed for investment that would boost mediocre European economic growth is still hampered by unresolved non-performing loans in banks, the head of the International Monetary Fund, Christine Lagarde, said on Friday.
The emphasis on investment comes as financial leaders from the Group of 20 leading economies meet in Turkey to discuss how to help spur growth, amid signs of slower expansion in the world's second biggest economy China.
Speaking at a business conference on the sidelines of the G20 finance ministers' meeting, Lagarde said despite financial sector reform and sovereign bond buying by the European Central Bank "some of the pipes are still clogged and the flow of credit has yet to pick up enough to facilitate investment."
"In Europe, there is still today a sizeable amount of non-performing loans that should be dealt with, moved out of the healthy circuits, with good management of bad banks...trading of non-performing loans and improvement of insolvency regimes," Lagarde said.
She stressed the importance of investment in infrastructure, quoting IMF research that investing 1 percent of GDP in infrastructure in advanced economies increased output by 0.4 percent the same year and by 1.5 percent after four years.
The European Union has launched a 3-year investment scheme worth 315 billion euros ($350 bln) to boost growth, but the ECB still expects growth in the 19 countries sharing the euro of 1.4 percent this year, below its previous 1.5 percent projection.
It cut its forecast for 2017 to 1.8 percent from 2.0 percent.
Reporting By Jan Strupczewski; Editing by Nick Tattersall