The global economy is at a “delicate juncture” which will require central banks to maintain stimulus and governments to resolve trade disputes quickly, the International Monetary Fund warned yesterday. “The immediate priority is to resolve the current trade tensions,” IMF chief Christine Lagarde urged in a blog post aimed at the Group of 20 finance ministers and central bankers as they prepare for a meeting in Japan this weekend. She said the exchange of tariffs between the United States and China will put the brakes on growth in both countries and cut a few points off global growth as well. “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 finance officials are meeting just weeks after US-China talks collapsed amid accusations of broken promises and another exchange of punishing tariffs. President Donald Trump has threatened to extend the tariffs to all Chinese imports. And last week Trump announced taxes on all goods coming from Mexico, which would increase every month up to 25% unless the government helps crack down on the flow of migrants. Lagarde urged governments “to help reduce trade tensions and clear other stumbling blocks on the way back to higher and more sustainable growth. The goal must be to help, not stand in the way of global growth.”
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. And 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.” And they should be ready to do more if those downside risks to the outlook materialise. “Should growth substantially disappoint, policymakers need to stand ready to act,” the report said, including “making use of conventional and unconventional monetary policy and fiscal stimulus.”
The IMF in April cut its global growth forecast to 3.3% for 2019 but said it expected the expansion to accelerate in the latter part of the year and rebound to 3.6% in 2020. However, Lagarde said that rebound “remains precarious,” and the US-China tariffs could trim 0.5 percentage point off global GDP next year. “This amounts to a loss of about US$455bn, larger than the size of South Africa’s economy,” she said. And in the medium term, the outlook “remains wanting,” the IMF said in its report, citing the toll imposed by low productivity and ageing populations in advanced economies. “G20 policymakers cannot be content with rates of GDP growth, which — in per capita terms — remain below historical averages for many countries,” the IMF said.