South African Reserve Bank governor Lesetja Kganyago
Photo by: Bloomberg
Global finance ministers and central bankers are prepared to “act promptly” to shore up growth in a world economy that faces downside risks including trade tensions, according to a statement issued Saturday.
While growth is projected to firm up in 2020, “risks remain tilted to the downside,” according to a communique by the International Monetary and Financial Committee (IMFC), the main advisory panel of the International Monetary Fund’s (IMF's) 189 member countries. Risks include “trade tensions, policy uncertainty, geopolitical risks, and a sudden sharp tightening of financial conditions against a backdrop of limited policy space, historically high debt levels, and heightened financial vulnerabilities,” the committee said.
“To protect the expansion, we will continue to mitigate risks, enhance resilience, and, if necessary, act promptly to shore up growth for the benefit of all,” officials said.
The statement marks heightened concern compared with the IMFC’s last meeting six months ago, when it said growth remained strong even amid an “uneven” recovery. The comments reflect a week in which the IMF cut its forecast for global growth to the lowest since the financial crisis and IMF MD Christine Lagarde warned policy makers to avoid “self-inflicted wounds” such as eye-for-an-eye tariffs.
The communique urged countries to resolve trade tensions, noting that “free, fair, and mutually beneficial goods and services trade and investment are key engines for growth and job creation.”
While the prior statement in October urged central banks to “maintain monetary accommodation” in places where inflation was below targets and tighten policy “where inflation is close to or above target,” the latest missive was more agnostic. It said “monetary policy should ensure that inflation remains on track toward, or stabilises around targets, and that inflation expectations remain anchored.”
The language follows a shift in Fed policy in recent months, where the US central bank has signaled it would leave interest rates unchanged at least through the end of this year following four hikes in 2018.
The policy panel urged central banks to communicate their policy decisions well and act in a “data dependent” way, according to the text, which also reiterated the commitment of nations to refrain from “competitive devaluations” of their currencies. Fiscal policy should be “flexible and growth friendly,” officials said.
“The global expansion is continuing but at a slower pace,” IMFC chairperson Lesetja Kganyago, governor of the South African Reserve Bank, said at a press conference on Saturday.
Also in Washington on Saturday, Mario Draghi struck a cautiously optimistic note about the prospects for a rebound in the euro-area economy this year, saying some of the factors that have held back growth appear to be waning.
The 19-nation economy has shown “remarkable resilience” faced with headwinds such as Brexit, trade protectionism and political uncertainties in some of its members, the European Central Bank president told reporters. Still, the balance of risks remains tilted to the downside and the ECB needs to maintain its accommodative policy, he said.