IMF's Lagarde says likely to cut growth outlook as trade wanes

Thu Sep 1, 2016 12:44pm EDT
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By David Lawder

WASHINGTON (Reuters) - International Monetary Fund Managing Director Christine Lagarde said the institution will likely downgrade its 2016 global growth forecast again as economic prospects are dimmed by weak demand, flagging trade and investment and growing inequality.

Lagarde told Reuters in an interview that G20 leaders need to do far more to spur demand, bolster the case for trade and globalization, and fight inequality.

And while some major threats to the global economy have yet to materialize, such as recession sparked by Britain's vote to leave the European Union or a collapse in Chinese growth, she described the overall outlook as "slightly declining growth, fragile, weak and certainly not fueled by trade."

"You could argue that Brexit is not really delivering the massive crisis that we had expected, you could argue that the Chinese transition is proceeding reasonably well, and you could argue that low commodity prices have gone up a little bit," Lagarde said. "So this is on the surface."

"However, when you look deep down at the economic growth prospects, at the growth potential, at the productivity, we are not getting very good signals, and we will probably be revising down our forecast for growth in 2016."

The IMF is due to revise its World Economic Outlook forecasts in early October ahead of its annual meetings. Another cut would be the sixth straight growth markdown in about 18 months.

Citing global uncertainty over the June 23 Brexit vote, the IMF in July cut global GDP growth estimates to 3.1 percent for 2016 and 3.4 percent for 2017 - down about a tenth of a point for each year.

The full economic impact of the Brexit crisis will probably not be fully known until 2017, when more will become apparent about the shape of the future UK-EU relationship, Lagarde said. But she noted that Britons' wealth has already been eroded by a 15 percent decline in the pound's value, and that UK consumer and business confidence data was weak.   Continued...

International Monetary Fund Managing Director Christine Lagarde is interviewed by Reuters at IMF headquarters in Washington U.S. August 31, 2016.   REUTERS/Gary Cameron