Christine Lagarde says world economy ‘unsettled’ as fund poised to downgrade forecast
Christine Lagarde said rising trade tensions, concerns over Brexit and tougher financial conditions as central banks raised interest rates had “increasingly unsettled” the world economy over recent months.
The head of the International Monetary Fund has warned that the majority of countries around the world can expect slower growth in 2019 as the global economy loses momentum.
In a speech in Washington on Tuesday before the IMF’s spring meeting next week, Lagarde indicated that the global lender of last resort was likely to downgrade its forecast for world growth in 2019 and 2020.
IMF: no-deal Brexit and Chinese slump are biggest economic risks
The warning from the Washington-based fund comes as fears grow over the strength of the world economy a decade on from the 2008 financial crisis, triggered by growing risks from the US-China trade dispute and higher interest rates.
In January, the IMF said it expected that the world economy would expand by about 3.5% in both 2019 and 2020. But Lagarde said: “It has since lost further momentum, as you will see from our updated forecast next week.”
Lagarde said the IMF expected economic growth to slow in 70% of countries this year, two years after a synchronised upswing for three-quarters of countries in 2017.
“A year ago, I said: ‘The sun is shining – fix the roof.’ Six months ago, I pointed to clouds of risk on the horizon. Today, the weather is increasingly unsettled,” she said.
Financial markets were rattled last year by the increase of interest rates by the US Federal Reserve and Donald Trump’s trade dispute with Beijing. Signs in recent months of central banks, including the Fed, holding back from additional rate rises have calmed global markets.
Despite the warning, Lagarde said the global economy should be able to steer clear of a full-blown recession in the near term. “In fact, we expect some pickup in growth in the second half of 2019 and into 2020,” she said.
“Many economies are not resilient enough. High public debt and low interest rates have left limited room to act when the next downturn comes, which inevitably it will,” she said.
The rebound for growth pencilled in by the IMF for the second half of 2019 did, however, come against a backdrop of increasingly “precarious” conditions, Lagarde said, with potential risks including Brexit, high debt in some sectors and countries, tensions over trade policy and a sense of unease in financial markets.