Thu, 17 Jan 2019
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Mexico City

IMF warns of troubles governments might fail to cope with

By Sheetal Sukhija, Mexico City News
12 Dec 2018, 04:57 GMT+10

LONDON, U.K. - The International Monetary Fund (IMF) has warned of 'storm clouds' building over the world economy, urging governments to deal with the troubles before it is too late.

Speaking at a banking conference hosted by Bloomberg, IMF First Deputy Managing Director David Lipton said that storm clouds were gathering over the global economy.

He warned that governments and central banks might not be well-equipped to cope with the troubles.

Lipton said that IMF had been urging governments to fix the roof during the sunny two year period for the world economy.

He said, "But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete."

While warning that strains could leave policymakers under pressure and in uncharted waters, Lipton said, "Central banks would likely end up exploring ever-more unconventional measures. But with their effectiveness uncertain, we ought to be concerned about the potency of monetary policy.

The top IMF official said that several governments across the world soon wont have much room to manoeuvre since they have already racked up high debts.

According to Lipton, the stimulus may be a hard sell politically, considering the financial burden it creates.

He warned, "We should not expect governments to end up with the ample space to respond to a downturn that they had 10 years ago."

The IMF First Deputy Managing Director warned that the current trade war between the United States and China was the biggest immediate risk.

According to IMF estimates, if all of the threatened tariffs are put in place, as much as three-quarters of a percent of global GDP would be lost by 2020.

He said, "That would be a self-inflicted wound. So it is vital that this ceasefire (recently announced between Washington and Beijing) leads to a durable agreement that avoids an intensification or spread of tensions."

Lipton said that if it doesnt and a stalemate sets in, there could be a damaging fragmentation of the global economy that causes a downturn.

The warning by Lipton comes a day after the IMF chief economist warned that Americans will begin feeling the effects next year of a marked slowing in world economic growth but should be spared a new recession.

Maurice Obstfeld, the IMF chief economist said, "Wehave long been predicting somewhat lower (U.S.) growth for 2019 than what we are seeing this year," as the effects of the Trump administration's fiscal and budgetary measures begin to fade.

Obstfeld, who is set to retire from the world body soon, said during an interview that the slowdown "is going to be sharper probably in 2020 than in 2019, according to the data we are seeing."

He pointed out that the IMF has already revised its 2019 growth prediction for the U.S. downward, to 2.5 percent from the 2.8 percent expected for this year.

Obstfeld said, "For the rest of the world there seems to be some air coming out of the balloon," pointing to weaker than expected third-quarter economic results in Asia and Europe.

He warned, "That will come back and also affect the U.S."

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