Published: Fri, October 12, 2018
Business | By Tara Barton

Fix trade, don't destroy it, International Monetary Fund chief Christine Lagarde warns

Fix trade, don't destroy it, International Monetary Fund chief Christine Lagarde warns

The ongoing trade war between the USA and China could start having material effects on the economies of both countries within the coming years, according to new projections from the International Monetary Fund (IMF).

"The global economic recovery has been uneven and inequality has risen, fuelling inward-looking policies and contributing to increased policy uncertainty". Growth has proven to be less balanced than we had hoped.

For months analysts have warned Khan's new government that a new current account crisis could undermine its currency and its ability to repay billions in debts or purchase imports.

The IMF, in its twice annual assessment of global financial stability, said conditions remain broadly conducive to economic growth, but are at risk of worsening should emerging markets deteriorate further or trade tensions escalate.

The report also amplified worries about global trade, echoing numerous earlier IMF statements, but noted that trade tensions have thus far affected individual sectors more directly than the financial system. "The scars from the global financial crisis are still evident on public wealth a decade later", the report said, adding that the net worth of 17 advanced economies together was now Dollars 11 trillion lower than it had been prior to the crisis. "Additional steps are needed to improve its resilience", Adrian said. Still, investors have thus far differentiated among emerging markets, rather than fleeing wholesale. There are other ways through which stability risks could rise sharply, he said.

In a separate report, the International Monetary Fund said the United Kingdom had historically weak public finances with high-levels of debt and low-levels of assets.

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According to the report, total nonfinancial sector debt in jurisdictions with systemically important financial sectors has grown from Dollars 113 trillion (more than 200 per cent of their combined GDP) in 2008 to USD 167 trillion (close to 250 per cent of their combined GDP).

She said this was necessary "because if services are not sufficiently covered, if digital transformation is not sufficiently covered in the current trade framework, then we are missing the point, and we are probably missing out on productivity gains that we could have".

"Although the global banking system is stronger than before the crisis, it is exposed to highly indebted borrowers as well as to opaque and illiquid assets and foreign currency rollover risks", it warned. This creates a potential blind spot for policymakers who could use this knowledge to head off economic risks, it said.

"In that scenario, countries with high external debt, substantial financing or rollover needs, limited policy space, and weak reserve buffers would be particularly vulnerable", the report added.

Even though Indonesia is not included in the International Monetary Fund list of most vulnerable economies (Argentina, Brazil, South Africa and Turkey), as its economic fundamentals and its financial sector stability are now much stronger than during the 1998 Asian economic crisis and the 2008 global financial crisis, it is by no means a time for complacency.

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