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The global economy, while still growing, has hit a plateau and may not be strong enough to withstand rising trade tensions, International Monetary Fund (IMF) Managing Director Christine Lagarde said Thursday.

The IMF earlier this week cut its forecast for global growth to 3.7 percent this year and next year — down 0.2 percentage points from an earlier estimate. The downward revisions mean that the global economy would grow by the same rate for three consecutive years starting 2017.

“The real question is: Is the economy strong enough? To that, my answer is ‘probably not enough’ because we clearly see growth has plateaued three years in a row — it is at 3.7 percent — and we also see that growth is unevenly allocated around the world,” Lagarde told reporters at the IMF and World Bank annual meetings in Bali, Indonesia.

“Moreover, some of the risks that we have highlighted at our spring meetings in April have now begun to materialize, especially from the rising trade barriers,” she added. “If these tensions were to escalate, the global economy would take a significant hit.”

In addition to the hit to economic growth prospects, worsening trade tensions could also trigger another global financial crisis, the IMF said earlier this week.

Lagarde said the best response to the ongoing tensions is to “de-escalate, fix the system, don’t break it.” She added that the casualties won’t just be the U.S. and China — the two largest economies in the world in the center of the current tariff fight – but also countries that are part of the global supply chain and suppliers of raw materials to manufacturers involved in the dispute.

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US Deputy Energy Secretary Dan Brouillette on US oil and natural gas



A drilling crew member on an oil rig in the Permian Basin near Wink, Texas. 

Nick Oxford | Reuters

The U.S. will maintain its oil production — or even ramp it up higher — despite low energy prices and slowing economic growth, Deputy Energy Secretary Dan Brouillette said Wednesday.

Shale producers in the U.S. will continue to produce a record 12 million barrels a day throughout next year, he said, citing projections from the Energy Information Administration. They may even go up to as high as 13 million barrels, he added.

“U.S. production numbers are going to continue for quite some time,” Brouillette told CNBC.

U.S. West Texas Intermediate (WTI) crude futures have fallen almost 20% since reaching their 2019 peaks in late April, as oil prices were dragged down by intensifying fears of an economic downturn that’s started to impact oil consumption.

But Brouillette rejected fears that oil demand would be hit amid slowing growth.

“Growth is slowing down slightly … over the course of early 2019. But I suspect that as the economy begins to rev up, we’ll start to see that demand pick up as well. And it’s going to be good news for oil producers,” he said.

On Wednesday, Brent crude futures were at $61.34 per barrel, and U.S. crude futures were at $52.40 per barrel — off this year’s highs of around $74 and $66 per barrel in April.

Our biggest challenge in the United States is not maintaining production, it’s actually getting the product to market. We are developing infrastructure … at a rapid pace, but we need to do more.

Dan Brouillette

U.S. Deputy Energy Secretary

Even though shale drillers in the U.S. have been said to face obstacles on growing output amid a wave of belt-tightening that’s cutting billions of dollars from budgets, and the number of operating oil rigs have declined this year, Brouillette said that production is not actually the biggest problem.

“Our biggest challenge in the United States is not maintaining production, it’s actually getting the product to market. We are developing infrastructure … at a rapid pace, but we need to do more. We need more pipeline capacity in order to have the oil and the gas reach these export markets,” he said.

In fact, Brouillette said, there will be increased production, not falling output, in the U.S.

Last year, the global appetite for natural gas grew at the fastest pace since 2010. Most of that supply is expected to come from the U.S., amid its ambitions to be a top liquefied natural gas (LNG) exporter.

American gas output surged by 11.5% in 2018 — marking the fastest growth since 1951, according to the International Energy Agency. Currently, Australia and Qatar are the top two exporters of LNG, which is a form of the fuel chilled to liquid for transport by sea.

But amid the trade war, Chinese tariffs on U.S. natural gas could put Washington’s ambitions on hold, with the Asian giant accounting for a large share of global demand and taking the spot as the world’s number 2 importer for LNG.

Brouillette dismissed that notion, however, pointing to high demand from the rest of Asia.

He said that sales to South Korea and Japan look “very, very large” relative to China. With Mexico numbers added to that tally, “the future looks pretty bright,” he added.

“We still see continued LNG export growth all throughout the world,” Brouillette added.

— CNBC’s Tom DiChristopher contributed to this report.

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Stock buyers beware because a Fed rate cut might not work this time



A phrase often used by American market commentators over the years is “don’t kill the goose that lays the golden eggs” and while no one has slaughtered global markets yet, feathers have been sharply plucked.

If our bird is the markets, then the trade war is the latest cause of stress and not everyone believes the Federal Reserve can prescribe an antidote this time.

Jerome Powell, chairman of the U.S. Federal Reserve, speaks during a Senate Banking Committee hearing in Washington, D.C., U.S., on Tuesday. Feb. 26, 2019.

Bloomberg | Bloomberg | Getty Images

Hans Redeker, Global Head of FX Strategy at Morgan Stanley said the market was wrong to buy stocks last week after Federal Reserve Chair Jerome Powell hinted at a response to any fallout from trade. Redeker said investors need to watch the warning signs.

One red flag, waving for weeks, is the inverted yield curve. Redeker said many people are simply putting it down to the U.S. repatriating money but ignoring its knock-on effect. Redeker said people should question how U.S. banks might act in future if they suffer limited profitability thanks to low interest rates..

But surely if growth slows and inflation falters, the Fed just steps in to reduce the cost of money? Not so fast.

While the Fed may cut, it’s not a slam dunk that the dollar will fall. The Morgan Stanley team raked over the history books and found in two cases the dollar went down on the back of a rate cut but in three other cases it went up.

Redeker, an FX specialist, warned the dollar which funds 80% of global trade, needs to fall because at current levels it is suppressing growth. The problem is so acute Redeker said, it would not be a surprise if the U.S. led a discussion on FX at the G20 at the end of June.

Perhaps it’s why the ECB’s Mario Draghi didn’t “out dove” Powell last week, weakening the euro.

Other assets standing at an important crossroads for markets last week also weighed economic slowdown against the firepower of the Fed. Michael Howell, CEO at CrossBorder Capital, has warned investors to prepare for a rush to safety and predicted the 10-year US Treasury yield would fall by 100 basis points within 12 months.

Howell said he sees a reduced appetite by investors to gamble on returns. He explained that investors are shuffling down the risk curve into safer assets and shrinking their investing horizons.

More than ten years on from the financial crisis and faith in global growth is worsening.

—Karen Tso is an anchor on Squawk Box Europe, CNBC and you can follow her on Twitter @cnbckaren.

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Lagarde and Draghi warn about trade war



IMF’s Managing Director Christine Lagarde with ECB’s president Mario Draghi.

Eric Piermont | AFP | Getty Images

Two of the world’s most influential economic leaders have said that there are “troubling developments” arising from increased trade barriers and tariffs.

Mario Draghi, the president of the European Central Bank (ECB) and Christine Lagarde, the managing director of the International Monetary Fund (IMF) warned that the global trade dispute between the U.S. and China as well as a threatened dispute with Europe and other industrial nations could cause “headwinds for all” and could get worse.

Speaking at the 8th ECB conference focused on central, eastern and south-eastern European (CESEE) countries on Wednesday, the IMF’s Lagarde said “we meet at a moment when support for global cooperation and multilateral solutions is waning.”

Global growth has been subdued for more than six years and the largest economies in the world are putting up, or threatening to put up, new trade barriers. And this might be the beginning of something else, which might affect us all in a more broad way, ” she said.

“These troubling developments will create headwinds for all, but certainly for the CESEE growth model, a model that has relied on openness and integration,” she warned.

Trade-restrictive measures

Lagarde and Draghi, who gave a welcome address at the conference, said the threat of U.S. import tariffs (on Europe) meant that some European countries that are centers of European car production — Czech Republic, Slovakia, Poland and Romania — could be particularly vulnerable.

“Global trade has faced headwinds in recent years as trade-restrictive measures have outpaced liberalising measures,” Draghi told the audience in Frankfurt.

“The central and eastern European business model has become vulnerable to shocks to international trade and financial conditions,” Draghi said, noting that in some CEESE countries vehicle exports represent nearly 30% of total manufactured exports, making them more vulnerable to U.S. President Trump’s threat to increase tariffs on European cars and car parts. Last August, Trump threatened to put a 25% tax on all EU car imports but has yet to implement the move.

“The effect of tariffs could be amplified, as a large share of goods cross borders multiple times during the production process,” he said.

“The main long-term challenge is moving towards a more balanced growth and financing model, which is more reliant on domestic innovation and on higher investment spending than it has been so far,” Draghi added.

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