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Rein in protectionism to boost global growth says Christine Lagarde

Governments must defeat a rising tide of protectionism to prevent a further slowdown in global growth, the head of the International Monetary Fund has said.

Christine Lagarde said policies that restrict trade were a form of “economic malpractice” that would choke off growth, hit jobs and reduce wages.

Speaking in Chicago, she urged governments to act quickly to lower trade barriers to increase global growth and boost the incomes of the poorest.

Western governments bore most of the blame for global growth becoming “weak and fragile” over the past few years and allowing protectionist policies to restrict trade flows, she said. She said the Brexit vote would have consequences for Britain and the world.

Rein in protectionism to boost global growth says Christine Lagarde
Rein in protectionism to boost global growth says Christine Lagarde

Lagarde’s call for governments to match their demands for greater global economic coordination with action to overcome trade barriers, comes a week before the IMF’s biannual gathering in Washington.

The UK chancellor, Philip Hammond, will join finance ministers and central bank governors at the meeting and the IMF will publish its latest health check on the global economy.

Hammond is expected to tell Lagarde that Brexit presents the UK with an opportunity to open trade negotiations with a host of nations and maintain close links with the EU.

The IMF is concerned that a hard Brexit will restrict trade flows between the world’s largest trading block and the fifth largest economy in the world, undermining the prospects of a stronger recovery.

Lagarde said: “For the past several years, the global recovery has been weak and fragile, and this continues to be the case today. Especially for advanced economies – while there are some good signs – the overall growth outlook still remains subdued. We continue to face the problem of global growth being too low for too long, benefiting too few.

“Rising economic inequality is a phenomenon in many countries today, rich and poor, but it has really hit home in the advanced world right now, where real incomes for many have been declining – or growing at a much slower rate – and past economic achievements seem at risk.

“What this tells us is that governments must work harder to make growth inclusive.”

Lagarde’s comments may be regarded as another veiled attack on the anti-free trade stance of the US presidential candidates Donald Trump and Hillary Clinton and nationalist politicians in Europe, who favour protecting domestic manufacturing jobs by imposing barriers on imported goods.

Earlier this month she said there was a growing risk of “politicians seeking office by promising to ‘get tough’ with foreign trade partners through punitive tariffs or other restrictions on trade”.

Her advice to governments was first to “do no harm” by shutting doors to trade.

“It is sure to worsen the growth outlook for the world and especially its weakest citizens … We need to rethink fundamentally how growth can be made more inclusive, and act accordingly.”

She said a backlash against central banks’ low interest rate policies also endangered cheap credit, a key driver of growth. She said, however, that low interest rates were not enough on their own and should be allied with higher government spending.

“By using monetary, fiscal, and structural policies in concert – within countries, across them, and consistent over time – we can make the whole greater than the sum of the parts.”

“Pessimists believe that our traditional means of monetary and fiscal policy are exhausted, but I beg to differ. In my view, there is more policy space – more room to act – than is commonly believed. It requires pushing harder on all policy levers and taking more advantage of the synergies between them,” she said.

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