Global growth has lost momentum amid rising trade tensions and tighter financial conditions, but pauses in rate hikes would help boost activity in the second half of the year, IMF managing director Christine Lagarde said on Tuesday.
Lagarde, in a preview of the IMF and World Bank spring meetings from Friday to Sunday next week, said that the global economy is “unsettled” after two years of steady growth, with the outlook “precarious” and vulnerable to trade, Brexit and financial market shocks.
In January, the IMF cut its global growth forecast for this year to 3.5 percent from 3.7 percent, and Lagarde signaled further cuts when the IMF releases new forecasts next week.
Photo: EPA-EFE
“We had this synchronized acceleration of growth a couple of years ago. Now it is synchronized deceleration and a slowing momentum across the spectrum,” Lagarde said in a panel discussion at the US Chamber of Commerce headquarters in Washington.
The IMF does not anticipate a recession in the near term and the US Federal Reserve’s “more patient pace of monetary policy normalization” would provide some thrust to growth in the second half of this year and into next year,” she said.
However, years of high public debt and low interest rates since the financial crisis a decade ago have left limited room in many countries to act when the next downturn arrives, so countries need to make smarter use of fiscal policy, she said.
This means striking a better balance between growth, debt sustainability and social objectives, and acting to address growing inequality by building stronger social safety nets, she said.
Lagarde previewed new IMF research ahead of its release yesterday, showing that rising trade tensions and tariffs were hurting investment in plant, machinery and job creating projects.
Other IMF research would show that rising market power among some technology firms was leading to price markups in a “winner takes most” dynamic that she said requires more effective policies to foster innovation and ensure fair competition.
Lagarde also said that the IMF has revised its analysis of the US-China trade dispute’s impacts, showing that if all trade between the world’s two largest economies were subjected to a 25 percent tariff, US economic growth would fall by up to 0.6 percent, while China’s would decline by up to 1.5 percent.
US President Donald Trump has threatened to subject all imports from China to a 25 percent tariff if the two sides cannot resolve their disputes in negotiations.
“Nobody wins a trade war,” Lagarde said.
“That is why we need to work together to reduce trade barriers and modernize the global trade system,” she said.
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