IMF vows to do ‘whatever it takes’

The International Monetary Fund has signalled a “whatever it takes” approach to boost the global economy.

Former IMF managing director Christine Lagarde. Picture: AFP

The International Monetary Fund has signalled a “whatever it takes” approach to boost the global economy and urged leaders to resolve trade tensions and boost fiscal policy to support demand.

Global finance officials have also promised to “employ all appropriate policy tools” to shore up economic growth amid trade tensions, policy uncertainty and geopolitical risks, against a backdrop of limited policy space, high and rising debt levels, and heightened financial vulnerabilities.

“Available fiscal space should be used to support demand as needed,” the IMF’s International Monetary and Financial Committee said in a communique released over the weekend following its annual meeting in Washington.

Josh Frydenberg was among attendees who signed off on the communique, which included US Treasury secretary Steven Mnuchin and Bank of England governor Mark Carney.

“We will employ all appropriate policy tools, individually and collectively, to mitigate risks, enhance resilience, and shore up growth to benefit all,” the communique said.

Amid scant evidence of progress in easing the trade tensions which have been a major source of the slowdown, the IMF said its members “recognise the need to resolve trade tensions and support the necessary reform of the World Trade Organisation”.

The comments were reminiscent of the IMF’s resolve when markets wobbled in early 2016.

At that time, the Fed delayed interest rate hikes and China delivered its biggest ever fiscal stimulus.

Growth is expected to pick up next year from a recently downgraded forecast of 3 per cent for 2019, but the outlook was “highly uncertain and subject to elevated downside risks”, the IMF said.

The IMF’s World Economic Outlook last week cut its growth forecast for the Australian economy from 2.1 per cent to 1.7 per cent — a level below the government’s and the Reserve Bank’s forecasts of about 2.25 per cent.

The Australian sharemarket on Monday is poised to fall for a third day running, with futures suggesting the S&P/ASX 200 benchmark will open down about 0.3 per cent near 6630 points.

The Dow Jones Industrial Average dived 1 per cent on Friday amid steep falls in Boeing, Johnson & Johnson and American Express. The benchmark S&P 500 fell 0.4 per cent to 2986.2 points.

But there was also no sign that discussions on the sidelines of the IMF meetings had produced any breakthrough in the trade disputes initiated by President Donald Trump as part of stronger enforcement of US trade laws to lower America’s huge trade deficits.

In remarks to the IMF committee, Mr Mnuchin said the US administration’s goal was to prepare “a foundation for future growth through fairer trade deals”.

He said negotiations last week between the US and China, the world’s two biggest economies, had achieved “substantial progress” on phase one of a trade deal to resolve US claims that China is stealing intellectual property.

While President Donald Trump suspended a tariff increase on $US250bn ($370bn) of Chinese products that had been scheduled to take effect this past week, few specifics about that agreement have come out.

US officials said negotiations to wrap up those details were underway.

IMF managing director Kristalina Georgieva said the threat from trade wars was a chief point of discussion for finance officials.

She said the IMF estimated that the tariffs already imposed or threatened could shave 0.8 per cent off global growth by the end of next year, much of that from the fallout on business confidence.

In trade wars, “everybody loses”, she said. “Policymakers ought to take very seriously their obligations to international co-operation in trade.”

World Bank president David Malpass said discussions had focused on multiple challenges.

“Growth is slowing, investment is sluggish, manufacturing activity is soft and trade is weakening,” he said. “Climate change and fragility are making poor countries more vulnerable.”

He said the World Bank was committed to helping to address these challenges to provide a better life for the 700 million people in the world living in extreme poverty.

The IMF, in an updated economic outlook, projected the global economy would expand by 3 per cent this year, the weakest in a decade, and said 90 per cent of the world was experiencing a downshift in growth.

But the IMF forecast growth would accelerate slightly to 3.4 per cent in 2020, still below the 3.6 per cent rate in 2018.

While Mr Trump’s trade policies were a prime topic of discussion at the meetings, finance officials for the most part avoided direct criticism of the US President.

Christine Lagarde, who dealt with the Trump administration during her last three years as head of the IMF, was a bit more direct in a US television interview to be broadcast on the weekend.

Asked about Trump’s trade war with China, she said it would give the world’s economy “a big haircut” and should be resolved by having all parties “sit down like big men, many men in those rooms and put everything on the table, and try to deal bit by bit, piece by piece, so that we have certainty.”

On Mr Trump’s frequent Twitter attacks on Federal Reserve chair Jerome Powell, Ms Lagarde said central bankers needed to be independent to do their jobs well.

“Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions,” she said.

Ms Lagarde is scheduled to take over on 1 November as the head of the European Central Bank, which manages monetary policy for the 19 countries that use the euro currency.