SMM News: for months, International Monetary Fund (IMF) Managing Director Lagarde has been repeatedly warning of trade frictions may pose threats and risks to the global economy. Her speech became more and more sharp at a time of increasing tension.
On Wednesday, June 5, Lagarde warned again that rising tariffs would hit the already shaky global economic recovery, and that both tariff and non-tariff barriers would actually put the brakes on economic growth. The IMF has now seen signs of a simultaneous slowdown and the materialization of trade risks.
In the eyes of IMF economists, by 2020, if all current tariffs are taken into account, global economic growth will fall by 0.5 per cent, or $455 billion, larger than South Africa's economy.
It is worth noting that in the latest issue of the World Economic Outlook in April this year, IMF has cut the global economic growth rate to 3.3% in 2019, the lowest since the financial crisis.
Lagarde believes that IMF members should support the retention of IMF's current total loan capacity of $1, 000bn in response to future crises. She also said she would oppose more barriers during the G20 finance ministers' meeting to undermine economic recovery and called for liberalisation of trade in services.
As early as April, Lagarde suggested that the global economy was at a "delicate moment" and was losing momentum. Brexit and trade tensions in major countries around the world have posed clear downside risks and affected business confidence, hurting factory, machinery investment and job creation.
In a separate speech, she even reiterated that the global economy was facing uncertainty, urged countries to take action to curb the coordinated slowdown in the global economy, and said trade integration helped to increase productivity, innovation, growth and employment.
Recently, the cloudy trade situation has also made major financial institutions more pessimistic.
On June 4th the world bank followed in the footsteps of IMF, cutting its forecast for global growth this year by 0.3 percentage points to 2.6 per cent, up from 2.9 per cent in January. The latest forecast is the lowest since 2016 and the sharpest cut in three years.
Ayhan Kose, an economist at the World Bank, said that "the global economy is moving towards a crossroads" and that although it is not yet time to press the panic button, if trade tensions persist, we do not rule out the possibility of continuing to significantly lower global growth expectations.
Two days earlier, Morgan Stanley chief economist Chetan Ahya also released a report saying that despite the high uncertainty of the current results, the global economy could slip into recession within three quarters if the United States imposes more tariffs. Rising costs, slowing customer demand and corporate cuts in capital spending will be the main reasons for the impact on global growth.
While policymakers may take action to curb the negative effects of trade frictions, "a slowdown in global growth seems inevitable because of the habitual lag in the impact of policy measures on the real economy," the report said.