Amidst escalating global trade tensions in the wake of US policies under President Donald Trump, IMF chief Christine Lagarde Monday urged countries to work together to build a global trade system that is stronger, fairer and fit for the future.
Lagarde made the remarks in a major policy speech at the International Monetary Fund headquarters here ahead of the annual fall meeting of the IMF and the World Bank in Bali later this month.
"Countries need to work together to build a global trade system that is stronger, fairer, and fit for the future," Lagarde said.
"De-escalate and resolve the current trade disputes. History shows that, while it is tempting to sail alone, countries must resist the siren call of self-sufficiency-because as the Greek legends tell us, that leads to shipwreck," she said.
"Going forward, what we need are 'smarter rules' for trade that ensure all can gain. We need to fix the system, not destroy it," Lagarde said.
She said there are signs that global growth has plateaued. It is becoming less synchronized, with fewer countries participating in the expansion.
"In July, we projected 3.9 per cent global growth for 2018 and 2019. The outlook has since become less bright, as you will see from our updated forecast next week," she said.
"A key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise," she said in an apparent reference to the increasing trade barriers.
For now, the US is growing strongly, supported by a procyclical fiscal expansion and still easy financial conditions - which can become a risk in a maturing business cycle. In other advanced economies, however, there are signs of slowing, especially in the euro area and, to some extent, in Japan, she noted.
"Emerging Asia continues to grow at higher rates than other regions, but we see indicators of moderation in China, which will be exacerbated by the trade disputes," she said.
"Meanwhile, challenges have been mounting in a number of other emerging market and low income countries - including in Latin America, the Middle East, and Sub-Saharan Africa," she said. Many of these economies are facing pressures from a stronger US dollar and a tightening of financial market conditions. Some of them are now facing capital outflows, she noted.
Noting that guarding against fiscal and financial turbulence is a major challenge, Lagarde said that 10 years after the global financial crisis, the world is safe, but not safe enough.
"We must push on with the financial regulatory agenda-and resist backsliding. Moreover, after a decade of relatively easy financial conditions, debt levels have reached new highs in advanced, emerging, and low-income countries," she said.
In fact, global debt-both public and private-has reached an all-time high of USD 182 trillion - almost 60 per cent higher than in 2007, she said, adding that this buildup has left governments and companies more vulnerable to a tightening of financial conditions.
"Emerging and developing economies are already feeling the pinch as they adjust to monetary normalization in the advanced world. That process could become even more challenging if it were to accelerate suddenly. It could lead to market corrections, sharp exchange rate movements, and further weakening of capital flows," she said.
IMF estimates that emerging economies - excluding China - could potentially face debt portfolio outflows of up to USD 100 billion - which would broadly match outflows during the global financial crisis.
"This should serve as a wake-up call, she added.