The growing temptation to resort to protectionism and uncertainty in Europe linked to the French elections pose “risks” to the global economy, International Monetary Fund chief Christine Lagarde said Wednesday.
In a speech in Brussels ahead of next week’s Spring meetings of the IMF and the World Bank in Washington, the IMF leader said “there are clear downside risks” to the world economic outlook, including “political uncertainty, including in Europe” and “the sword of protectionism hanging over global trade.”
In an interview with Bloomberg TV, Lagarde pointed to the high level of uncertainty surrounding the French presidential election in less than two weeks, and the German general elections scheduled for the autumn.
She said she worries about either election given that “the track record in the last few months has been the realization of unpredictable results,” including Brexit.
The world economy is experiencing stronger growth but “protectionism is clearly a threat,” she warned.
The risks of US President Donald Trump starting a trade war have declined recently, but if implemented protectionist policies would result in “limited growth, limited productivity, limited investment, limited innovation,” Lagarde said.
She also urged the Trump administration to refrain from naming China a currency manipulator in a Treasury Department report due out later this month, something the US president promised to do on his first day in office.
“You cannot just identify one particular country because the whole system works together. And when the currency goes up somewhere it goes down somewhere else,” she said.
The last semi-annual Treasury report to Congress put China on a watch list for potential currency manipulation to gain a trade advantage, something the country was accused of doing for years. However, in recent years when Beijing has intervened in foreign exchange markets it has been to keep the yuan from weakening.
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