IMF Chief Christine Lagarde at the World Economic Forum in Davos, Switzerland.
IMF Chief Christine Lagarde at the World Economic Forum in Davos, Switzerland.Bloomberg TV

IMF Chief Christine Lagarde has said that inequality is widening across the world and needs to be tackled to ensure economic growth is sustainable.

Speaking at the World Economic Forum in Davos, Switzerland, Lagarde said that every effort had to be made to avoid a generation of young people becoming trapped in unemployment.

"The gap has been widening tremendously, particularly over the last ten years and it has widened in all corners. You look at the US economy. You look at the Brazilian economy. You look at some of the developing countries although to a lesser degree, but it does ... that inequality has expanded," said Lagarde to Bloomberg Television.

The IMF is taking steps to research the roots of inequality more and find ways of stopping it from becoming entrenched added Lagarde

"You have this sort of self-fulfilling situation, where the more inequality, the less sustainable, the less growth, the less jobs and the bad cycle is on. So, it's a question of breaking that cycle."

She offered the example of Japanese companies that look to boost wages of employees and Nordic countries which have policies aimed at fighting inequality.

"I think the Nordic countries, which mostly have a redistribution system by way of progressive taxation, for instance, have demonstrated that their growth is rather more sustainable than the growth of other advanced economies."

Lagarde said it was hard to pinpoint a universal solution for inequality and more information and research into the problem was required.

"First of all, it has to be talked about. Secondly, it needs to be solidly researched and demonstrated, because there is no natural tendency to share and be philanthropic about earnings and stakeholders are not necessarily looked at with the same degree of equanimity.

"So, that's step one. Step two, there has to be demonstrated success that less inequality is actually conducive to better societies and to more sustainable growth."

In addition, more has to be done in connecting different strands of society to tackle wealth disparities, she said.

"You have to use all the tools, all the tools. It is combining enough of a partnership between the educational system, the policy makers and the corporate sector so that training, including vocational training, can be targeted where it is going to leverage jobs and opportunities for young people."