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Christine Lagarde, who is the International Monetary Fund’s Managing Director, said that the trade disputes and heavy tariffs are beginning to stunt the outlook for global growth, encouraging countries to resolve their trade differences and to begin reforming global trading rules.

In a speech she delivered ahead of the IMF and World Bank’s annual meetings next week in Indonesia, the director said that growth was at its highest level since 2011 but it had plateaued, with fewer countries taking part in the expansion.

“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,” said Lagarde without divulging new figures.

“A key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise,” she added.

While the United States is growing strongly because of the tax cuts and easy financial conditions, there are still signs of sluggishness in the euro area and Japan. China is also showing a sign of losing steam, a trend that was made worse by its trade disputes with the US, which has slapped heavy tariffs on $250 billion worth of imports from China and is threatening duties on $267 billion more.

The trade war, along with higher interest rates and a stronger US dollar, is beginning to influence a sizable portion of the emerging markets, said Lagarde, citing new IMF research that indicates emerging market countries, China not included, could probably face debt portfolio outflows of as much as $100 billion. That’s a range that would broadly match outflows during the global financial crisis a decade ago.

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“To be clear, we are not seeing broader financial contagion – so far – but we also know that conditions can change rapidly. If the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and developing economies,” added Lagarde.

The IMF and World Bank meetings in Indonesia come 20 years after the Asian financial crisis, in which the archipelago incurred massive capital outflows and had to seek IMF’s help for a bailout package that brought painful austerity.

Lagarde praised Indonesia’s efforts to build a more resilient economy and said the IMF would provide financial assistance when needed.

Without specifically namedropping the United States and China, Lagarde called on countries to “de-escalate and resolve the current trade disputes” and start to work on building “smarter rules” for the global trading system, including reforms to the World Trade Organization.

“The immediate challenge is to strengthen the rules. This includes looking at the distortionary effects of state subsidies, preventing abuses of dominant positions and improving the enforcement of intellectual property rights,” said Lagarde, citing issues affecting both Chinese practices and US technology company dominance.

However, if agreement among all countries cannot be sealed, she said she would encourage them to work on more flexible trade deals by “like-minded” countries to work within WTO policies.

Attention also needs to aimed on e-commerce and trade able services, like engineering, communications, and transportation, said Lagarde. IMF research also shows that reducing trading costs by services by 15 percent could bolster total gross domestic product of G20 countries by higher than $350 billion this year, which is the equivalent of adding another South Africa to the bloc.

Lagarde also cautioned about the risk of growing debt pile that has hit a record $182 trillion, about 60 percent higher than at the beginning of the financial crisis in 2007.

She said that emerging  economies should take action to control the growth corporate debt and make government borrowing more sustainable, while developed economies should slash deficits and put public debt on a “gradual downward path.”

The better management of public assets could aid in generating higher revenues, she said, citting the new IMF  analysis showing that 31 countries have total public assets of $100 trillion, well beyond double their GDP.

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