Wed, Oct 03, 2018 page10

• IMF head Lagarde warns of economic slowdown on back of trade disputes

  • The Guardian
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  IMF managing director Christine Lagarde on Monday sounded the alarm over the global economy, warning of an economic slowdown triggered by rising trade protectionism and soaring levels of debt.

  Lagarde used a speech in Washington to drop the broadest possible hint that the IMF would cut its global growth forecast next week when it unveils its latest health check on the world economy.

  “In July, we projected 3.9 percent global growth for 2018 and 2019. The outlook has since become less bright, as you will see from our updated forecast next week,” she said before the fund’s annual meeting, which is to take place next week on the Indonesian island of Bali.

  

  IMF managing director Christine Lagarde speaks during opening remarks for the General IMF Meetings in Washington on Monday.

  Photo: AFP

  Lagarde suggested that the economic weather had started changing after the last annual meeting in Washington at the end of last year, when much of the world was experiencing the strongest period for economic growth since the financial crisis.

  Although there are still bright spots from falling levels of unemployment and the proportion of the global population living in extreme poverty falling to a record low of less than 10 percent, she said some risks to the economy had begun to materialize.

  Growing use of trade barriers, such as higher taxes on foreign imports, has already lowered the level of imports and exports around the world, while there has been an impact on business investment and manufacturing output, she said.

  “If the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and developing economies,” she added.

  In a veiled attack on the US, she said that nations “sailing alone” would not help to fix international trade disputes.

  “History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency — because as the Greek legends tell us, that leads to shipwreck,” Lagarde said.

  US President Donald Trump has typically favored unilateral action on trade matters rather than cooperation through international forums such as the WTO, with the potential to unpick the postwar consensus of ever-closer economic partnerships between wealthy nations.

  Although the US over the weekend reached a renewed deal on trade with Canada and Mexico, in a potential boost to the regional economy, risks to the global economy still remain from a separate dispute between the US and China.

  Lagarde also sounded the alarm over financial stability, where the total value of global debt — in the public and private sectors — has rocketed by 60 percent in the decade since the financial crisis to reach an all-time high of US$182 trillion.

  She said the buildup had made governments and companies around the world more vulnerable to higher interest from central banks, including moves from the US Federal Reserve.

  Several developing nations have been hit by plunging currencies, as global investors become increasingly concerned about their ability to repay their debts amid rising borrowing costs around the world.

  Emerging markets — excluding China — could see investors sell as much as US$100 billion of their bonds, which would broadly match outflows seen during the financial crisis a decade ago, Lagarde said.

  “This should serve as a wake-up call,” she added.
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