International Monetary Fund managing director Christine Lagarde said the institution will likely downgrade its 2016 global growth forecast again as economic prospects are dimmed by weak demand, flagging trade and investment and growing inequality.
Lagarde told Reuters in an interview that G20 leaders need to do far more to spur demand, bolster the case for trade and globalisation, and fight inequality.
And while some major threats to the global economy have yet to materialise, such as recession sparked by Britain’s vote to leave the European Union or a collapse in Chinese growth, she described the overall outlook as “slightly declining growth, fragile, weak and certainly not fuelled by trade.”
“You could argue that Brexit is not really delivering the massive crisis that we had expected, you could argue that the Chinese transition is proceeding reasonably well, and you could argue that low commodity prices have gone up a little bit,” Lagarde said.”So this is on the surface.”
“However, when you look deep down at the economic growth prospects, at the growth potential, at the productivity, we are not getting very good signals, and we will probably be revising down our forecast for growth in 2016.”
The IMF is due to revise its World Economic Outlook forecasts in early October ahead of its annual meetings. Another cut would be the sixth straight growth markdown in about 18 months.
Citing global uncertainty over the June 23 Brexit vote, the IMF in July cut global GDP growth estimates to 3.1% for 2016 and 3.4% for 2017, down about a tenth of a point for each year.
The full economic impact of the Brexit crisis will probably not be fully known until 2017, when more will become apparent about the shape of the future UK-EU relationship, Lagarde said.
But she noted that Britons’ wealth has already been eroded by a 15% decline in the pound’s value, and that UK consumer and business confidence data was weak.
Lagarde said she will tell G20 leaders on Sunday and Monday in Hangzhou, China that further reductions in growth potential and more obstacles to the free movement of goods, services, capital and people would hurt all of them.
She said people harmed by trade and innovation need to be helped by policies to allow them to retrain and acquire new skills and job mobility. “This is something that all countries and all governments should be concerned and mobilised about,” Lagarde said.
The IMF said in a briefing note to G20 leaders that falling trade volumes have contributed to lower GDP growth and urged them to make a stronger case for the benefits of trade.
Lagarde said she would be spending the next several days speaking with senior officials in a number of countries to persuade them to contribute to about $5bn to $6bn in bilateral financing to support Egypt. The funds are needed to allow a $12bn IMF loan programme to be approved by the Fund’s board.