The International Monetary Fund is optimistic on the outlook for global growth but warned darker clouds are looming due to fading fiscal stimulus and rising interest rates.
In a speech in Hong Kong, IMF Managing Director Christine Lagarde said the top priorities for the global economy are to steer clear of protectionism, guard against financial risk and foster long-term growth.
The globalized system that has transformed the world over the last generation is at risk of being completely dismantled amid aggressive turns toward protectionism.
“That system of rules and shared responsibility is now in danger of being torn apart,” Lagarde said, referring to the multilateral trade order she said helped bring millions out of poverty. “This would be an inexcusable, collective policy failure.”
Lagarde’s sense of urgency stemmed from increasing fears of a trade war, prompted by President Donald Trump’s move to impose steep tariffs on all steel and aluminum imports coming into the U.S., which was swiftly met with retaliation from China and opprobrium from many other trading partners including the EU.
Impact of Trade Conflict
The IMF chief was speaking as a trade conflict between the United States and China is creating significant uncertainty for businesses and their global supply chains.
"History shows that import restrictions hurt everyone, especially poorer consumers," Lagarde said.
"Not only do they lead to more expensive products and more limited choices, but they also prevent trade from playing its essential role in boosting productivity and spreading new technologies."
The best way to tackle global imbalances is to use fiscal tools or structural reforms, she said, adding that the World Trade Organization's rules were in danger of being "torn apart", which would be "an inexcusable, collective policy failure."
Policymakers need to commit to a level playing field and resolve disputes without using exceptional measures, she said.
Global Debt Increase
A new analysis by the IMF showed that global debt had reached an all-time high of $164 trillion, 40 percent higher than in 2007, with China accounting for just over half of that increase.
Lagarde said economies needed to reduce government deficits, strengthen fiscal frameworks and place public debt on a gradual downward path.
"Strengthening financial stability by increasing buffers in corporate and banking sectors is key, especially in large emerging markets such as China and India," she said.
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