Trade tensions threaten global economy
WASHINGTON » The head of the International Monetary Fund warned Thursday that the healthiest global economy in years is threatened by rising debt levels, volatile financial markets and a simmering trade dispute between the world’s two biggest economies.
IMF Managing Director Christine Lagarde told reporters a U.S.-China trade war “will not be something that will affect only the two countries because the world is so interconnected. It will affect the global economy.”
For now, the IMF expects the global economy to grow 3.9 percent this year, the fastest since 2011. But Lagarde says “we are seeing more clouds accumulating on the horizon.” She cited trade tensions and rising global debts, which have hit a record $164 trillion. She noted that government debt in advanced economies is at the highest level since World War II.
Lagarde’s comments came at a news conference to open the spring meetings of the 189-nation IMF and its sister lending organization, the World Bank.
The three days of talks will also include discussions among the Group of 20 major economies, which account for more than 80 percent of global economic output. The United States is being represented by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.
Mnuchin insisted Thursday that the administration’s imposition of tariffs on steel and aluminum imports and its consideration of penalty tariffs on up to $150 billion of Chinese imports were part of a strategy to level
the playing field on trade and reduce America’s huge trade deficits with China and other nations.
“Our objective with China is to have free and fair and reciprocal trade,” Mnuchin said in an interview with the Fox Business Network.
The spring meetings are occurring as the global economy enjoys a broad-based rebound — with most regions recording growth — for the first time since the 2008 financial crisis sent the world into a deep recession.
But Lagarde said the expansion was vulnerable. Stock prices are unusually high but have been battered recently over growing concerns about President Donald Trump’s aggressive America First trade policies. The turbulence comes as the Federal Reserve ratchets up U.S. interest rates from the record low levels where they had been in the decade after the financial crisis.
While the Fed has been raising rates at a gradual pace, Lagarde expressed concern about the consequences if the Fed had to accelerate the pace of its rate hikes. A rapid succession of rate hikes could push down stock prices and potentially hurt developing countries that have come to rely on foreign investment, she said.
To guard against these risks, Lagarde called for countries to take advantage of the current good times to reduce their debt, giving them room to ramp to combat a downturn.