Global economy may be slowing more than expected, Christine Lagarde says

IMF Managing Director Christine Lagarde. Photo: AFP

Washington: Global growth may be slowing more than forecast only a month ago, underscoring the urgency for countries to pull back from a damaging trade war, the International Monetary Fund warned.

The IMF downgraded its forecast for world growth last month, and recent data suggest the outlook has grown worse since then, the fund said Wednesday in report ahead of the Group of 20 leaders’ summit this week in Buenos Aires.

Financial conditions have tightened, especially in emerging markets, while trade tensions have increased, said the Washington-based fund. Since the IMF’s latest World Economic Update on 9 October, global stocks have slumped on concerns that rising interest rates and the US-China trade war could undermine growth.

“We have had a good stretch of solid growth by historical standards, but now we are facing a period where significant risks are materializing and darker clouds are looming,” IMF Managing Director Christine Lagarde said in a blog post accompanying the report.

Investors will be watching closely for signs of a breakthrough when President Donald Trump and President Xi Jinping meet Saturday on the sidelines of the G-20 summit. The US has slapped tariffs on $250 billion in Chinese imports, while Beijing has retaliated with duties on $110 billion in US goods.

In an interview this week, Trump said he’ll likely increase tariffs on $200 billion of Chinese goods to 25% from 10% next year, and that he may extend duties to cover all Chinese imports. The president is hopeful for a breakthrough in the meeting with Xi but is ready to apply new tariffs, White House economic adviser Larry Kudlow said on Tuesday.

Without naming specific countries, Lagarde urged leaders to lift recently applied import duties.

“We know that rising trade barriers are ultimately self-defeating for all involved,” she said. “Thus, it is imperative that all countries steer clear of new trade barriers, while reversing recent tariffs.”

Lagarde urged countries to cut spending where possible, so they have more room to respond if the economy weakens further. Central banks should take a “gradual, well-communicated, and data-dependent path” toward higher interest rates, she said.

She singled out several countries as capable of doing more to boost growth and relieve trade imbalances. Germany could use its budget surplus to raise its growth potential, while the US could cut its budget deficit and China could press ahead with “economic rebalancing,” she said.