Lagarde says Global Economy Vulnerable to Trade Tensions

Christine Lagarde, the Managing Director of International Monetary Fund (IMF), warned on April 19 that the increasing debt levels may derail an excellent global economy. The other factors contributing to this negativity include a low-burn trade dispute between the United States and China and volatile financial markets. She told the media that a trade war between the world's two largest economies will affect the world as every country is now entwined.

Global outlook

The IMF at present anticipates world economy to grow about 3.9 percent in 2018. If this happens, it will be the quickest since 2011. However, Lagarde cautioned, there exist dark clouds on the horizon. She mentioned increasing global debts and trade tensions. Global debt is now at a record $164 trillion. She pointed out that debts accumulated by the government in advanced economies are at their peak level since the time of the Second World War.

The IMF chief made her comments during a news conference. The event was the opening of the spring meeting of the 189-nation IMF. The World Bank, its financial sibling, also participated. The meeting will continue for three days. Discussions will be held between G20 or Group 20 major economies. These 20 contribute to approximately 80 percent of the global economic output. Jerome Powell and Steven Mnuchin, Chairman of Federal Reserve and Treasury Secretary of the United States respectively, are representing the United States. The meetings are being held at a time when the world economy is having a rebound. A majority of the world economies have now recorded a growth. This upswing is the first time since 2008. The financial crisis that year had sucked the world into a political recession.

Tariffs

Mnuchin had insisted on April 19 that the tariffs imposition by the Trump administration on aluminum and steel imports, along with penalty tariffs consideration on to a maximum of $150 billion of the Chinese imports were done as a strategic move to level the trade playing field between the two countries. The US has large trade deficits when it comes vis-a-vis China. The principal objective, Mnuchin said, is to have a fair, reciprocal, and free trade.

Lagarde spins a cautionary tale. She said that the expansion of the economy was a vulnerable one. Prices of stocks are now unnaturally high but were battered a few days ago due to the Trump administration's America First policies. Federal Reserve has pushed up the US interest rates from their record low levels. They were languishing there for many years post the financial crisis.

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