IMF chief: Global economy faces risks
WASHINGTON — The head of the International Monetary Fund said Thursday that a number of threats could derail the global economic recovery, despite signs that 2017 will be the best year for global growth since 2010.
IMF Managing Director Christine Lagarde warned that global financial leaders need to beware a number of threats from growing political tensions to increased skepticism about the benefits of globalization and rising levels of income inequality.
Lagarde said it will be important for finance ministers from the IMF’s 189member countries to focus on addressing these threats at a time when the global economy appears to finally be in a sustained recovery following the deep recession caused by the 2008 financial crisis.
“It is not time to complacent,” she told be reporters at a news conference Thursday. “Policymakers can use this moment to provide more certainty and provide for the future risks.”
Lagarde’s warning comes as global financial leaders gathered in Washington for the annual meetings of the IMF and its sister organization, the Bank.
Prior to Lagarde’s warning, foreign finance leaders already had raised questions about how the Trump administration would pursue its “America First” policies and whether they lending World would harm the global economy with rising protectionist trade pressures or market disruptions from increased tensions with North Korea and others.
In addition, finance officials from the world’s 20 biggest economies, the Group of 20, were meeting Thursday and Friday to discuss the current economic situation. Treasury Secretary Steven Mnuchin and Federal Reserve Chair Janet Yellen are representing the United States at these discussions.
In an updated economic forecast prepared for these meetings, the IMF projected that the global economy will grow 3.6 percent this year and 3.7 percent in 2018, putting the world economy on track for its best performance since 2010.
While the IMF boosted its outlook for the 19-country eurozone, Japan and China, it trimmed its estimates slightly for the United States compared to the projections it had made in April. It now sees U.S. growth at 2.2 percent this year and 2.3 percent next year, still up from the lackluster 1.5 percent pace of last year.
IMF economists said the reduction of 0.1 percentage point for 2017 and 0.2 percentage point for 2018 reflected less certainty over when the Trump administration will be able to get its tax cut plan through Congress. Even before the reductions, the IMF’s forecast was well below the 3-percent growth rates the administration says will be achieved with its policy changes to taxes, regulation and tougher trade enforcement.
A senior U.S. Treasury official, briefing reporters on this week’s meetings, said the IMF “has other things to do in the world than interject itself into the U.S. tax debate.” The official spoke on condition of anonymity to be able to discuss the U.S. agenda in advance of the meetings taking place.
Lagarde said that one thing the major economies will need to handle carefully is the movement away from massive economic support from their central banks. Such a move, if not well-telegraphed in advance, could disrupt global financial markets and reduce needed capital to developing countries.
The Federal Reserve has announced that this month it will start trimming its $4.5 trillion balance, which was increased five-fold since 2008 as the Fed tried unconventional means to jump-start economic growth. The European Central Bank and the Bank of Japan have undertaken similar efforts.