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 Wednesday.
“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 G20 finance officials are meeting just weeks after US-China talks collapsed amid accusations of broken promises and an exchange of punishing tariff increases.
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 percent unless that government helps crack down on the flow of migrants.
– Clear the stumbling blocks –
Lagarde urged governments “to help reduce trade tensions and clear other stumbling blocks” to global growth.
The IMF chief called the current situation “frustrating,” given the expanding trade conflicts, coming at a time when global trade is slowing.
“We don’t have to inflict wounds to ourselves — it is not going to leave many winners,” Lagarde said at a public event on Wednesday.
She repeated the point made in her blog that the rebound “remains precarious,” and the US-China tariffs so far inflicted and threatened could trim 0.5 percentage point off global GDP growth next year — an amount $455 billion larger than the entire South African economy.
And she cautioned that in contrast to the 2008 global financial crisis, most governments have “played out” their fiscal space and monetary policy tools, which leaves them more vulnerable in the event of another downturn.
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 materialize.
“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 percent for 2019 but said it expected the expansion to accelerate in the latter part of the year and rebound to 3.6 percent in 2020.
And in the medium term, the outlook “remains wanting,” the IMF said in its report, citing the toll imposed by low productivity and aging populations in advanced economies.
“G-20 policymakers cannot be content with rates of GDP growth, which — in per capita terms — remain below historical averages for many countries,” the IMF said.