MEXICO CITY • The International Monetary Fund’s (IMF) steering committee warned that global growth is at risk of faltering in coming years given uncomfortably low inflation and rising geopolitical risks, injecting a cautious note into an otherwise improving economic outlook.
“The recovery is not yet complete, with inflation below target in most advanced economies, and potential growth remains weak in many countries,” the International Monetary and Financial Committee (IMFC) said in a communique released on Saturday in Washington. “Near-term risks are broadly balanced, but there is no room for complacency because medium-term economic risks are tilted to the downside and geopolitical tensions are rising.”
The panel didn’t specify which geopolitical risks it was most concerned about. In the past few weeks, the US and North Korea have engaged in shrill rhetoric about Pyongyang’s nuclear weapons. And last Friday, US President Donald Trump took steps to confront Iran and renegotiate a 2015 multinational accord to curb Tehran’s nuclear programme. At the same time, the UK is in the middle of negotiations on the terms of its exit from the European Union.
The panel nonetheless described the global outlook as strengthening, with rising investment, industrial output and confidence — conditions that make it ripe for nations to “tackle key policy challenges” and enact policies that boost the speed limit of their economies.
“It’s when the sun is shining that you need to fix the roof,” IMF MD Christine Lagarde said at a press briefing to discuss the statement.
The IMF panel released the statement during the annual meetings of the IMF and World Bank. The IMFC is the IMF’s top advisory panel, and is composed of 24 ministers and central bankers from nations including the US, China, Germany, Japan and France.
The panel also reiterated previous stances on currencies, such as saying that “we will refrain from competitive devaluations, and will not target our exchange rates for competitive purposes”. In addition, “flexible exchange rates, where feasible, can serve as a shock absorber”, the IMFC said.
The IMFC repeated that it’s “working to strengthen” the contribution of trade to economies, echoing its April statement as well as one made by Group of 20 leaders in Germany in July. Those reflect efforts to accommodate the positions of the administration on trade; a year ago, the IMFC called in its missive to “resist all forms of protectionism”.
Asked about ongoing negotiations to overhaul the North American Free Trade Agreement, Lagarde (picture) said trade is a “very powerful engine” for growth, innovation and productivity. It’s also legitimate to take a look at revising such longstanding agreements, and hopefully it can result in a “win-win,” she said. — Bloomberg