IMF’s Christine Lagarde Calls on G-20 Members to Keep Growth "Momentum"

16 March 2017

Christine Lagarde, the Managing Director of the International Monetary Fund (IMF), called on G-20 officials preparing to meet in the German city of Baden-Baden later this week to keep the “momentum” in supporting global growth.

“The global economy is moving into a better position. But it would be a mistake to assume that it will automatically return to rude health,” said the IMF chief in a blog post released ahead of the 17-18 March meeting.

Among the areas that she flagged as being key for ensuring continued positive movement would be seeing balanced growth from China and greater supply-side expansion efforts in the US, though with the latter economy she noted that there is the possibility of negative “spillovers” depending on the direction of American policy going forward.

More broadly, the IMF chief – now in her second term at the Washington-based institution – called upon G-20 officials in Baden-Baden to both take on a strong commitment to the long-term health of the global economy, while also avoiding public policies that could have negative implications across the board.

“Above all, we should collectively avoid self-inflicted injuries. This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders,” warned Lagarde in the post. “Such measures would hurt the productivity, incomes, and living standards of all citizens.”

The 17 meeting will bring together G-20 finance ministers and central bank governors for their first gathering this year under the ongoing German presidency.

Notably, it is also the first such meeting since US President Donald Trump took office in Washington in January, and will be attended on the US side by newly-minted Treasury Secretary Steven Mnuchin.

Trade in the spotlight

The continued debate over the merits and pitfalls of trade liberalisation and globalisation is expected to take centre stage in the German city this weekend, with the two-day gathering taking place against the backdrop of a new US administration; the preparations for formal “Brexit” negotiations; and the ongoing European electoral cycles.

“Trade and technological innovation have allowed countries to grow the economic pie and improve living standards, while lifting hundreds of millions of people out of poverty,” said Lagarde on Tuesday, in a nod to the debate taking place in both public and political spheres across many parts of the world.

However, the IMF chief also warned that greater action is needed to address the potential losses from trade which can lead to jobs getting cut or income inequalities being exacerbated. She included, for example, the possibility of developing domestic policies aimed at helping “lower-skilled workers” gain the education and skills training to have other job options that also provide better incomes.

She also referred to the impact of the fast-changing technological context, suggesting that the pace of today’s world means that countries should support the use of “life-long learning.”

Indeed, media reports suggest that trade will be one of the key issues discussed in the German city this weekend, with the possibility that Germany could release a separate document focused specifically on the importance of free trade, with the goal of receiving the sign off of other G-20 participants.

The World Trade Organization predicted last month that trade is expected to continue seeing a “moderate” uptick during the first three months of 2017. The longer-term forecast released by the WTO last September suggesting that merchandise trade would grow at a rate of 1.7 percent last year – down from earlier projections – and could end up between 1.8 and 3.1 percent this year, which the organisation credited as a reflection of “the increasingly uncertain relationship between trade and output growth.” (See Bridges Weekly, 29 September 2016)

Currency policy

Exchange rate policy is also expected to be a major topic at the Baden-Baden gathering, as it has on previous occasions. The approach of the new US administration on the subject is one that will likely draw the attention of trade watchers, given that Trump raised repeatedly the concern of currencies being manipulated to give export advantages while on the American campaign trail last year, with a particular focus on China.

The US Treasury Department said in its October 2016 semi-annual report on the exchange rate policies of key trading partners that no economy – including Beijing – met all three criteria required under the Trade Facilitation and Trade Enforcement Act of 2015 to qualify for a “watch list” on “unfair currency practices.”

Six countries – namely China, Germany, Japan, South Korea, Switzerland, and Taiwan – met two of the criteria in April 2016 and are on a separate “monitoring list.” The three criteria include having both a large bilateral trade and current account surplus with the US and having taken part “in persistent one-sided intervention in the foreign exchange market.” (See Bridges Weekly, 4 May 2016)

The US Treasury is due to release its next report on these currency policies next month, with Reuters reporting that the new Treasury Secretary has pledged to withhold his own judgement on the situation in China until seeing the outcome of the study.

Busy G-20 calendar ahead

After the Baden-Baden discussions, the next meeting of G-20 finance ministers and central bank governors is slated to be on the sidelines of the IMF-World Bank Spring Meetings, scheduled for 21-23 April.

This year’s G-20 leaders’ summit will be held on 7-8 July in the German city of Hamburg, with the presidency highlighting trade and investment cooperation among the various issues that it intends to continue advancing under this framework.

The Trade and Investment Working Group within the context of the G-20 has already met twice this year and will gather once more in May. There will also be a meeting of “digital ministers” in April, marking a first for the G-20 forum.

The G-20 ran under the Chinese presidency in 2016, and will next go to Argentina for the 2017 summit.

ICTSD reporting; “Treasury’s Mnuchin to ‘push hard’ for U.S. interests at G20: official,” REUTERS, 13 March 2017; “Germany to press G20 to sign off on free trade amid worries about US stance: Sources,” REUTERS, 15 March 2017; “G-20 Heads for German Detox as Trump Shakes Club’s Consensus,” BLOOMBERG, 15 March 2017.

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