IMF Warns of Sharply Slowing Economy

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International Monetary Fund Managing Director Christine Lagarde said nations must improve trade relations and long-term financials and build income equality while “the sun is still shining.”

Her remarks assume that global economic growth soon will slow rapidly and that addressing these issues will become more difficult. While the IMF forecast for 2018/2019 economic growth holds at 3.9%, after that it cannot continue such a rapid expansion.

Lagarde said at the University of Hong Kong:

The reality is that the momentum expected for 2018 and 2019 will eventually slow.

It will slow because of fading fiscal stimulus, including in the U.S. and China; and because of rising interest rates and tighter financial conditions as major central banks normalize monetary policy.

Add to this the issue of aging populations and weak productivity, and you have a challenging medium-term outlook, especially in the advanced world.

While the aging population issue cannot be solved, other pressing issues can be.

In her own language, Lagarde spoke about “governments need to steer clear of protectionism in all its forms,” a “need to guard against fiscal and financial risks” and policies that undercut “improvements in living standards and a widening income gap between those countries and the advanced world.”

The IMF has issued similar warnings in the past, without effect.

An economic slowdown will have more repercussions than an inability to reach LaGarde’s three goals. After an expansion that will have lasted nearly a decade by 2019, a return to flat growth or a recession looms, with the traditional loss of jobs, damages to business and a return, if possible, of government stimulus.

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