G20 needs to act swiftly to avert economic slowdown, Largarde warns
The IMF chief says group leaders should adopt three priorities to accelerate growth
G20 leaders need to act swiftly to avert a tapering in economic growth and introduce reforms that can add 4 per cent to the group’s gross domestic product, the International Monetary Fund chief said on Wednesday.
The heads of the world’s 20 biggest economies, which represent 85 per cent of the global GDP, will gather in Buenos Aires on Friday amid escalating trade tensions between the US and China, the rise of protectionism, slowing economic growth and Brexit challenges.
“As G20 Leaders gather in Argentina, the global economy faces a critical juncture,” IMF managing director Christine Lagarde said in a blog. “We have had a good stretch of solid growth by historical standards, but now we are facing a period where significant risks are materialising and darker clouds are looming.”
The G20 meeting is taking place against a bleak backdrop. The IMF revised down its global economic growth forecast to 3.7 per cent for 2018 and 2019 from its 3.9 per cent projection in July, the first downgrade since July 2016. Trade war headwinds, emerging market woes and sluggish growth in the euro-zone economies are contributing to the gloomy outlook.
“As the most recent economic data has been disappointing, we must not allow ourselves to be held back,” Ms Lagarde said. “Rather, we must be ambitious, including by implementing a multi-layered set of reforms which could potentially add an additional 4 per cent boost to the GDP of the G20 countries.”
Germany, Europe’s largest economy, contracted by 0.2 per cent in the third quarter, a foreboding sign of an end to the five-year expansion in the eurozone.
Meanwhile China’s GDP grew at a lower-than-expected 6.5 per cent in the third quarter, the weakest pace in the world’s second largest economy since the global financial crisis.
“For example, third-quarter growth has been surprisingly low in emerging market economies such as China, and in the euro area. A no-deal Brexit could further dent confidence,” said Ms Lagarde.
“Over the medium-term, particularly in advanced economies, we see growth moderating because of adverse demographics and slow productivity. This includes the US, once the recent fiscal stimulus ends.”
Mr Lagarde suggested three priorities for reforms among G20 countries to achieve the additional 4 per cent boost to their economies.
The first priority includes fiscal consolidation in countries such as debt-laden Italy, which has locked horns with the European Union over its budget, and a “gradual, well-communicated, and data dependent” path of interest rate hikes to avoid creating mayhem in other economies.
The US federal reserve is expected to raise interest rates for a fourth time when it meets in December. But the pace of next year’s increases is unclear after chair Jerome Powell signalled this month a pause may be in the works, although a median forecast of policy makers in September had projected three quarter percentage point increases in 2019.
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Meanwhile, the European Central Bank is preparing to unwind its bond purchases programme in December but has yet to indicate when it would raise interest rates.
The second priority for G20 leaders, according to Ms Lagarde, should be teamwork to collectively avert building trade barriers that are “ultimately self-defeating for all involved” and reverse recent tariff hikes.
“We have a unique opportunity to improve the global trade system,” she said. “IMF research suggests that liberalising trade in services could add about half per cent, or $350 billion, to G20 GDP in the long run.”
Ms Lagarde’s comments come as US President Donald Trump, who is set to meet his Chinese counterpart Xi Jinping during the G20 meeting, threatened again this week to impose more duties on Chinese exports to the US after slapping tariffs on $250bn worth of Chinese imports in the past months.
The US is set to raise tariffs on $200bn of these goods from the current 10 per cent to 25 per cent on January 1, 2019.
The third priority for G20 chiefs should be the acceleration of reforms such as relaxing product market restrictions, Ms Lagarde added.
“Easing access to professional services would be especially important, for example, in Japan and many euro area countries. Increasing support for research would be vital in Canada, Germany, and the UK, among others,” she said.
“Most G20 emerging countries, too, would benefit from product and labour market reforms. Economies such as Brazil, China, India and Russia would gain by moving away from distortionary taxes.”
Updated: November 29, 2018 02:46 PM