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February 11, 2019

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Lagarde warns global economic storm is looming

The International Monetary Fund yesterday warned governments to gear up for a possible economic storm as growth undershoots expectations.

“The bottom line — we see an economy that is growing more slowly than we had anticipated,” IMF Managing Director Christine Lagarde told the World Government Summit in Dubai.

The clubby annual event brings world leaders together at a luxury hotel in Dubai for motivational talks littered with business buzzwords. But this year’s summit comes amid a worldwide turn toward populism and away from globalization.

Last month, the IMF lowered its global economic growth forecast for this year from 3.7 percent to 3.5 percent.

Lagarde cited what she called “four clouds” as the main factors undermining the global economy and warned that a “storm” might strike.

The risks include “trade tensions and tariff escalations, financial tightening, uncertainty related to (the) Brexit outcome and spillover impact and an accelerated slowdown of the Chinese economy,” she said.

Lagarde said trade tensions are already having a global impact.

“We have no idea how it is going to pan out and what we know is that it is already beginning to have an effect on trade, on confidence and on markets,” she said, warning governments to avoid protectionism.

Lagarde also pointed to the risks posed by rising borrowing costs within a context of “heavy debt” racked up by governments, firms and households.

“When there are too many clouds, it takes one lightning (bolt) to start the storm,” she said. Lagarde also warned yesterday that the British exit from the European Union means it “will never be as good as it is now” for the country’s economy.

Lagarde didn’t hesitate to criticize Britain’s upcoming departure from the EU. Britain is due to leave the EU on March 29. UK businesses fear a possible “no-deal” Brexit with the EU will cause economic chaos by imposing tariffs, customs and other barriers between Britain and mainland Europe.

“I’m certain of one thing, is that it’s not going to be as good as if they had not been Brexit, that is for sure,” she said. “Whether it ends well, whether there is a smooth exit given by customs unions as predicated by some, or whether it’s as a result of a brutal exit on March 29 without extension of notice, it’s not going to be as good as it is now.” She urged all parties to “get ready” as it will upend how trade is conducted with Britain.




 

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