Speaking at the U.S. Chamber of Commerce, Lagarde announced that the International Monetary Fund (IMF) would be releasing new global growth forecasts ahead of its spring meeting in Washington next week.
“Today, if you ask me, the weather is increasingly unsettled,” she said, adding that since January, global economic growth lost further momentum.
“Only two years ago, 75 percent of the global economy experienced an upswing,” she said. “For this year, we expect 70 percent of the global economy to experience a slowdown in growth.”
Lagarde noted, however, the IMF did not forecast a recession in the near term. In fact, it anticipates a pickup in growth in the second half of 2019 and into 2020.
The recent policy responses, such as the Federal Reserve’s “more patient pace of monetary policy normalization” and increased stimulus in China, have supported the easing of financial conditions, according to her.
Early last year, the IMF chief warned “darker clouds are looming” after two years of strong global economic expansion.
In October, the organization cut its global growth forecast for the first time since July 2016 due to slowing Chinese economic growth, U.S.–China trade war, and financial worries in emerging markets. In January, it announced further downward revision, stating that the world economy was growing at a pace slower than expected and risks were rising.
In its January report, the IMF projected that the world’s economy would grow at 3.5 percent in 2019 and 3.6 in 2020, 0.2 and 0.1 percentage point below last October’s projections.
The expected growth in the second half of this year and early 2020 is precarious, Lagarde said, as the economy is vulnerable to downside risks that include Brexit, high debt in certain sectors and countries, trade tensions, and “sense of unease in financial markets.”
Impact of Trade Tensions
The IMF chief also noted that trade tensions would take a toll on both the U.S. and Chinese economies.
“Specifically, we have looked at what might happen if tariffs on all goods traded between the United States and China went up by 25 percentage points,” she explained. “That alone would reduce annual gross domestic product by up to 0.6 percent in the United States and by up to 1.5 percent in China.”
High-level trade talks between the United States and China will continue this week in Washington.
Speaking at the Chamber of Commerce, White House economic adviser Larry Kudlow said that the U.S. trade delegation led by Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin made headway last week in Beijing. The administration expects to make more headway this week, he said.
“We are focusing heavily on enforcement and intellectual property theft and forced transfer of technology and cyber hacking and that structural group, which is very important as well as lowering tariffs and non-tariff barriers,” he said.
Last week, Kudlow told a group of reporters that Washington could lift some tariffs on China, without giving up too much leverage in trade talks.
The Trump administration believes Beijing has reasons to compromise, as economic woes continue to put pressure on the Chinese regime. Meanwhile, Beijing is expected to implement more stimulus measures to counter the slowing economy.
Under the weight of U.S. tariffs, the Chinese economy weakened last year. The economic growth slowed to its weakest pace in nearly three decades. If both sides fail to reach a deal and trade tensions resume, China’s troubles will deepen, according to analysts.
In 2018, China was the worst performing major stock market in the world, with the Shanghai index falling nearly 25 percent. The index has now gone up 27 percent since the beginning of this year after President Donald Trump signaled progress in trade talks.