By David Lawder and Leika Kihara
WASHINGTON (Reuters) – Global financial officials on Saturday said risks to worldwide economic growth were “tilted to the downside” due to factors such as trade tensions, policy uncertainty and the sudden tightening of financial conditions.
The higher risks are presenting themselves against a backdrop of limited policy space, historically high debt levels and heightened financial vulnerabilities, officials said in the joint communique of the International Monetary Fund’s steering committee.
The statement from the International Monetary and Financial Committee, or IMFC, was released at the spring meetings of the IMF and World Bank in Washington. Earlier this week, the IMF cut its global growth outlook for the third time in six months.
The world economy will likely grow 3.3 percent this year, the slowest expansion since 2016 and 0.2 percentage points below the global lender’s estimate from January.
The IMFC urged the world’s central banks to form monetary policy aimed at ensuring that inflation remains on track toward targets and that expectations for price increases remain anchored. “Central bank decisions need to remain well communicated and data-dependent,” it said.
The committee also said fiscal policy should be flexible and growth-friendly, but should be mindful of debt sustainability.
Growth is projected to firm up in 2020, it said.
In Europe, many of the global factors weighing on growth appear to be waning, keeping alive expectations for a recovery in the second half of the year, European Central Bank President Mario Draghi said.
But he also warned that factors that undermine confidence, including the risk of a hard Brexit and a global trade war, continue to “loom large,” putting growth at risk.
Elevated trade tensions have been a central talking point at the IMF and World Bank meetings this week and have been widely cited as a primary driver behind the weakening of the global economy.
Earlier, China took a swipe at U.S. President Donald Trump’s “America First” policies that have sparked a trade dispute between the world’s two largest economies, including tit-for-tat tariffs on hundreds of billions of dollars of goods.
“The protectionism of some countries has harmed mutual trust among countries, limited the scope for multilateral cooperation, and impeded the willingness to achieve it,” Chen Yulu, a vice governor at the People’s Bank of China (PBOC), said in a statement to the IMFC.
“Unilateralism and protectionism can only exacerbate domestic imbalances and impair necessary structural adjustments, which can negatively affect the countries concerned as well as global growth,” he said.
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