Chris Giles in Washington
Spring meetings of IMF and World Bank conclude on more positive note for economy
Finance ministers and central bank governors finished the spring meetings of the IMF in a more positive mood, saying that global growth was likely to “firm up” in coming months, leading to an improved outlook in 2020.
Having started the week with downgrades to forecasts for the global economy, the closing communique reflected a pervasive view of ministers that the fund had been a little too gloomy in its prognosis.
The ministers and central bank governors on the IMF’s governing body stressed that there remained significant risks for growth from trade tensions, a lack of clear tools to deal with any downturn that might arise and potential shocks such as Brexit, but still expected the economic data to improve.
Financial markets have been much more positive about the global outlook, sensing an easing in trade tensions and a low probability of a disruptive Brexit, and it is beginning to be reflected in economic data, such as positive surprises in European industrial output.
Christine Lagarde, managing director of the IMF, said the global economic situation remained “delicate”, but would improve if countries “do the right thing” and “do no harm”. In saying this, she stressed the importance of resolving US trade tensions with China.
Mario Draghi, president of the European Central Bank, said the risks had not disappeared, but stressed that the threat of a disorderly Brexit had waned and the Chinese stimulus of its economy appeared to be having an effect. He said the eurozone economy was also showing “remarkable resilience” with jobs being created, a strong service sector and incomes and wages rising “almost everywhere, not just in core [eurozone] countries”.
Some close observers of the international economic scene said that the IMF had been too gloomy in its outlook. Angel Ubide, head of economic research for global fixed income at Citadel, said: “The world is in a different place from where it was at the end of last year. The US-China trade conflict is now less of a concern, and the global economy is getting a boost from the U-turn in monetary policy. Tightening is now off the agenda for a long while”.
The Federal Reserve has reversed its previous plans to raise interest rates much further this year, which helped market sentiment that global financial conditions would not tighten more in 2019.
But the Fed’s move to loosen policy following severe pressure from US president Donald Trump raised concerns in the Washington meetings that people would lose confidence that central banks based their decisions on evidence and data rather than having them forced on them by politicians.
As the meetings ended, Mr Draghi said the pressure on the Fed was a concern because it undermined the credibility of central banks, not just in the US, and that could undermine economic performance across the world.
“I am certainly worried about central bank independence in other countries, especially in the [US], the most important jurisdiction in the world,” he said.
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