The head of the 189-nation International Monetary Fund said Thursday the world is facing a time of high uncertainty with 70% of the global economy caught in a growth slowdown that could be worsened by self-inflicted wounds such as unnecessary trade battles.
IMF Managing Director Christine Lagarde said that while her agency is forecasting a rebound in growth next year that forecast is “precarious and subject to downside risks” with rising trade tensions a top threat.
Trade flows have been shaken by the Trump administration’s efforts to force China to stop stealing technology and coercing foreign companies to hand over trade secrets.
The trade war between the United States and China, the world’s two biggest economies, has disrupted supply chains, shaken business confidence and contributed to a deterioration in the global outlook.
That slowdown in global prospects and what to do about it was expected to be the key agenda item when global finance officials hold meetings over the next three days in Washington.
U.S. Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell will represent the United States at those discussions revolving around the spring meetings of the IMF and its sister lending institution, the World Bank.
Speaking at an opening news conference, Lagarde said when officials were gathering a year ago for the spring finance meetings, 75% of the global economy was enjoying a synchronized upswing. Now, she said, 70% of the global economy is enduring slower growth.
While she said the IMF is forecasting a rebound to stronger growth next year, numerous risks could derail that forecast. She said those include unresolved trade tensions, high debt burdens for individual countries and corporations and political missteps such as a botched exit by Britain from the European Union.
“We are at a delicate moment,” Lagarde said.
The IMF, citing heightened trade tensions, this week downgraded its forecast for growth this year in the United States, Europe, Japan and the world overall. The fund’s economists expect global growth to decelerate from 3.6% last year to 3.3% in 2019 — tied with 2016 as the weakest performance since the recession year 2009.
Growth in word trade is expected to expand just 3.4% — a sharp slowdown from the 4% trade growth the IMF had expected in its previous forecast in January and down from actual growth of 3.8% in trade last year.
At a separate news conference Thursday, David Malpass, the new president of the World Bank, said that the current slowdown in global growth is jeopardizing the fight against extreme poverty, especially in sub-Saharan Africa.
Malpass, a longtime critic of the World Bank, was nominated by President Donald Trump earlier this year for the top job at the bank. He was elected by the bank’s 25-member board of directors last week after a lobbying campaign in which he sought to convince the other nations that his goal was to improve the bank’s operations, not impose a dramatic overhaul.
He has said that he supports the World Bank’s efforts to deal with global climate change problems despite the fact that Trump pulled the United States out of the global climate treaty.
Although Malpass has criticized the bank for lending to China at the expense of poorer countries, he told reporters Thursday that he was “looking forward to a constructive relationship with China.”
In a separate interview with CNBC, Malpass said that after he was nominated by Trump, he traveled to 10 major countries including Japan, South Korea and China to discuss his goals if he was selected as the World Bank’s 13th president. He succeeds Jim Yong Kim, who had been nominated by the Obama administration. The institution has always been headed by an American while the IMF has always been led by a European.
“I talked with President Xi of China,” Malpass said. “He was supportive of the idea that the World Bank … that our relationship with China is evolving in a positive way where we can be constructive together.”
In remarks released by Treasury that Mnuchin will make to the IMF’s policy committee on Saturday, Mnuchin said the United States believed the IMF, which supplies emergency loans to countries in financial crisis, has “ample resources” to do it jobs currently and the United States does not see a current need to boost the quotas that member countries pay into the IMF to fund operations.
The finance meetings will include talks Thursday and Friday with the Group of 20 finance officials, representing the world’s largest economies, and will conclude Saturday with meetings of the policy-setting panels of the IMF and World Bank.
The G-20 discussions will help prepare the agenda for a leaders’ summit in Osaka, Japan, to be attended by Trump and other world leaders on June 28-29.
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