The global economy is at a “delicate juncture,” which will require central banks to maintain stimulus and governments to resolve trade disputes quickly, the IMF warned on Wednesday.
“The immediate priority is to resolve the current trade tensions,” IMF managing director Christine Lagarde urged in a blog post aimed at the G20 finance ministers and central bankers as they prepare for a meeting in Japan this weekend.
She said the exchange of tariffs between the US and China would put the brakes on growth in both countries and cut a few points off global growth as well.
Photo: AFP
“These are self-inflicted wounds that must be avoided,” she said. “How? By removing the recently implemented trade barriers and by avoiding further barriers in whatever form.”
The G20 finance officials are meeting just weeks after US-China talks collapsed amid accusations of broken promises and an exchange of punishing tariff increases.
US President Donald Trump has threatened to extend the tariffs to all Chinese imports, and last week he announced taxes on all goods coming from Mexico, which would increase every month up to 25 percent unless that government helps crack down on the flow of migrants.
Lagarde urged governments “to help reduce trade tensions and clear other stumbling blocks” to global growth.
The IMF head called the current situation “frustrating,” given the expanding trade conflicts, coming at a time when global trade is slowing.
“We don’t have to inflict wounds to ourselves — it is not going to leave many winners,” Lagarde said at a public event on Wednesday.
She repeated the point made in her blog that the rebound “remains precarious,” and the US-China tariffs so far inflicted and threatened could trim 0.5 percentage points off global GDP growth next year — an amount US$455 billion larger than the entire South African economy.
She also cautioned that in contrast to the 2008 global financial crisis, most governments have “played out” their fiscal space and monetary policy tools, which leaves them more vulnerable in the event of another downturn.
In a report prepared for the G20 gathering, the IMF said the trade conflicts, as well as Brexit, mean “questions remain about the strength of the recovery” that require policies to continue to support growth.
“With the global economy remaining at a delicate juncture, the policy mix must be carefully calibrated,” the IMF said.
With inflation lagging well below goals set by many central banks, the IMF urged policymakers to maintain stimulus until “incoming data confirm inflationary pressures toward targets.”
It said they should be ready to do more if those downside risks to the outlook materialize.
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