WASHINGTON: The European Union decision to offer Britain a six-month delay in exiting the economic bloc averts disaster but perpetuates the uncertainty of Brexit, IMF chief Christine Lagarde said on Thursday.
“At least the UK is not leaving on the 12th of April without a deal,” Lagarde told reporters at the start of the IMF’s spring meetings with the World Bank.
“It probably gives time for the economic agents to better prepare for all options, I’m particularly thinking of the industrialists and the workers in the UK, in order to try to secure their future.”
European leaders on Wednesday agreed to delay Brexit by up to six months, preventing what could have been a chaotic exit from the EU on Friday without a deal to govern economic ties with the bloc.
But even so Lagarde said this effectively kicked the can down the road. “It’s obvious that it’s continued uncertainty and it does not resolve, other than by postponing what would have been a terrible outcome, because we believe that in terms of economic consequences a no-deal Brexit would have been a terrible outcome.”
The IMF highlighted uncertainty surrounding Brexit and trade conflicts around the world as a key risk to global growth, which is slowing this year.
Slowdown in China
Meanwhile, IMF Deputy Managing Director Mitsuhiro Furusawa warned a bigger-than-expected slowdown in China’s economy is among key risks to global growth.
Furusawa said China’s slowdown so far has been moderate and Beijing has the necessary tools to underpin growth, helping keep Asia a key driver of the global economy.
But he warned that uncertainty over China’s growth outlook was among risks to the global economy, as well as the chance of an abrupt tightening of market conditions if Sino-US trade talks take an unexpected turn for the worse.
“One would be the trade friction, which is weighing not just on trade volume but investment,” Furusawa said on risks to the global outlook. “If China’s economy slows more than expected, that’s also a risk to the global economy,” he told Reuters on Wednesday.
Trade frictions and China’s slowdown are among factors finance leaders of the Group of 20 major economies will discuss when they meet this week on the sidelines of the IMF meetings.
China’s economy expanded at a 6.6 percent rate last year, the slowest rate of expansion since 1990, stoking concern that slumping demand in the world’s second-largest economy could prolong weaknesses in global growth.
The IMF expects China’s growth to slow further to 6.3pc this year, though the forecast was an upgrade from its projection made three months ago.
Furusawa said China should not lose sight of the need to undertake structural reforms to address problems like excess capacity and rising debt, even as it seeks to spur growth with short-term stimulus measures.
“That’s a crucial point and Chinese authorities understand this well,” he said. “It’s undesirable for China, or any other country, to keep relying on stimulus measures for too long. You need structural reform to strengthen economic fundamentals.” Furusawa said the decisions by U.S. and European central banks to pause in their efforts to normalize monetary policy were desirable not just for Asia but for the entire world economy given weakening growth.
But he said central banks should not be the only game in town when aiming for sustainable economic growth.
“Given current conditions, we support the current accommodative monetary policy stance,” said Furusawa, a former top Japanese currency diplomat.
“That said, monetary easing must remain data dependent and be well communicated. Countries need to undertake necessary structural reforms that will help them achieve sustainable growth,” he added.
Published in Dawn, April 12th, 2019