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.