IMF Chief Lagarde Says Economic Outlook Is Dimming

IMF Chief Lagarde Says Economic Outlook Is Dimming

Remarks set a concerned tone for fund’s annual meetings in Indonesia this month. International Monetary Fund Managing Director Christine Lagarde on Oct. 1 said the fund’s economic forecasts have ‘become less bright.

International Monetary Fund Managing Director Christine Lagarde is raising alarm bells about the health of the global economy, saying international growth may have plateaued.

“For most countries, it has become more difficult to deliver on the promise of greater prosperity, because the global economic weather is beginning to change,” Ms. Lagarde said in a speech in Washington on Monday.

Ms. Lagarde said the IMF’s official economic forecasts, which will be released next week, have “become less bright” and that factors identified as merely risks earlier in the year have begun to materialize.

Her remarks set a concerned tone for the IMF’s annual meetings, which will be held this month in Indonesia, and will bring together most of the world’s finance ministers and central bankers to assess the health and discuss priorities for the global financial system.

The global economy enjoyed a strong and synchronized upswing in 2017—with most economies accelerating and no major nation in recession. This year got off to a somewhat rockier start, with a number of emerging markets facing turmoil as the dollar strengthened and their currencies declined. Argentina turned to the IMF for a massive bailout this year, and other countries, including Turkey and Pakistan, have been under acute strain.

But overall growth had appeared robust earlier in 2018. Powered by accelerating growth in the world’s largest economy, the U.S., the global outlook had overall remained fairly strong. The U.S. stock market powered to highs and many global stock gauges have held up well despite the turmoil. The Global Dow, a gauge of international blue-chip stocks, dropped about 9% in January and February but has since risen about 4%.

While other emerging-market currencies, from Indonesia’s to South Africa’s, have also experienced difficult declines this year, most emerging markets have avoided the acute turmoil of Turkey and Argentina.

If the crisis spreads, as some fear, capital could flood out of emerging markets, Ms. Lagarde warned, saying that IMF economists had estimated emerging markets could face up to $100 billion in portfolio outflows. In recent years, about $240 billion a year had flowed into those countries, so a $100 billion outflow would be a dramatic reversal.

Ms. Lagarde said another mounting concern is that threats to impose new trade restrictions have been carried out in a number of countries.

“A key issue is that rhetoric is morphing into a new reality of actual trade barriers,” Ms. Lagarde said. “This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise.”

She said there are new signs of slowing in the eurozone and Japan, and there are “indicators of moderation in China, which will be exacerbated by the trade disputes.”

Ms. Lagarde highlighted another ill omen, that countries have continued to pile on debt, which has tended to foretell slower growth in years ahead as the burden of debt service mounts. The total global debt of the public and private sector has reached an “all-time high of $182 trillion,” Ms. Lagarde said, noting that the figure was 60% higher than in 2007.

Corrections & Amplifications
The International Monetary Fund will conduct its annual meetings in Indonesia this month. A headline accompanying an earlier version of this article incorrectly stated the meetings were to be held next month

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