Speaking at the World Economic Forum in Davos, Switzerland, today, the IMF chief described the United States-China trade war as one of the biggest threats facing the economy as she reiterated the organisation’s global growth downgrade. The IMF recently made its second downgrade in three months, citing trade war tensions, weakness in Europe and political uncertainty including Brexit as stumbling blocks facing the global economy. Mrs Lagarde played down the latest estimates as a ”modest” demotion when asked how resilient the global economy truly is. However, she reiterated that the trade war between the US and China, the world’s largest economic powerhouses, poses the biggest risk to the financial system.
China last week announced its slowest annual pace of growth in almost three decades, sparked in part by the ongoing rift with Washington.
Mrs Lagarde brushed aside concerns of the Chinese economy, calling it “legitimate”, but added a “real issue” would occur if the slowdown accelerated.
She said: “It is legitimate its is right and I think it is very much to be controlled by Chinese authorities.”
“But if the slowdown was fast, it would constitute a real issue.”
In a briefing after the IMF released their global growth downgrade, Mrs Lagarde admitted “the world economy is growing more slowly than expected and risks are rising”.
But she maintained that while the situation looks gloomy on paper, a recession is “not around the corner”.
However, she added: “The risk of a sharper decline in global growth has certainly increased.”
The IMF report came hours after data showing China’s economy cooled in the fourth quarter.
It came after faltering domestic demand and bruising US tariffs, dragging 2018 growth to the lowest in nearly three decades.
Gross domestic product (GDP) for October to December eased to 6.4 percent on-year, the slowest pace since the global financial crisis and down from 6.5 percent in the third quarter.
The figures from the National Bureau of Statistics drags full-year growth down to 6.6 percent, the slowest annual pace since 1990.
The IMF’s chief economist Gita Gopinath told the briefing: “The numbers we saw for China today are completely consistent with our forecasts.”