IMF “encouraged” by strong UK growth, Christine Lagarde says
The UK’s growth in recent months has been “encouraging”, contributing towards healthier prospects for the world economy, according to the head of the International Monetary Fund (IMF).
Christine Lagarde said the IMF is “especially encouraged by stronger-than-expected economic activity in the Euro area, the United Kingdom, and Japan.”
The outperformance of the UK was one of the factors helping the world economy to reach a “turning point” as growth starts to pick up, Lagarde said in an article published on the IMF’s blog ahead of the G20 meeting in Baden-Baden, Germany.
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Before the EU referendum the IMF joined multiple influential organisations saying the UK economy would face a recession, lower wages, and higher unemployment if it voted to leave.
However, since the referendum growth has actually accelerated, albeit from a low base, and unemployment has stayed at 11-year lows.
The stronger-than-expected growth is part of a global picture of “growing optimism”, Lagarde said.
She said: “The recent strengthening of activity suggests that the world economy may finally snap out of its multi-year convalescence.”
The IMF predicts global GDP will accelerate to grow by 3.4 per cent this year and 3.6 per cent in 2018.
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However, she also warned politicians to avoid “self-inflicted injuries” which could harm growth, in a thinly veiled warning to the administration of US President Donald Trump.
In a clear jab at protectionism, Lagarde said: “This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders.
“Such measures would hurt the productivIty, incomes, and living standards of all citizens,” she added.
Trump’s policies add further risks to global growth stemming from the US, which includes the rising value of the dollar and the Federal Reserve’s widely expected interest rate rise.
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These “could lead to a sharper-than-expected tightening in global financial conditions,” she said.
She added: “This could potentially put stress on some emerging economies and low-income countries.”
A more valuable dollar raises the cost of debts held by other economies in US dollars, while higher interest rates in the US will likely lead to less credit feeding through.