Speech

Opening Remarks by Christine Lagarde at World Economic Outlook Press Conference

January 21, 2019

Welcome and thank you all for coming today. This is the first time that the World Economic Outlook Update is presented by Gita Gopinath, our new Chief Economist.

We are incredibly excited to have Gita on our team, and we are both grateful to Klaus Schwab and the WEF for hosting us here in Davos.

In a moment, Gita and her deputy Gian Maria will take us through the WEO, but first I would like to give a brief overview.

As you know, in October the IMF cut its global growth forecast for 2019 and 2020, partly because of the negative effects of rising trade barriers. Today we are announcing a further downward revision of our forecast.

The bottom line is that after two years of strong expansion, the world economy is growing more slowly than expected and risks are rising.

Perhaps, being here in January, we might think of a winter-sports image:

If the world economy were a cross-country skier, she would have been moving at a relatively high speed last year, but now the slope is changing and pointing slightly uphill. This is still a good trail to be on, but it gets a little bit harder to keep up the pace.

And even as the world economy continues to move ahead, it is facing significantly higher risks, some of them related to policy.

These risks are now increasingly intertwined: think of how higher tariffs and rising uncertainty over future trade policy fed into lower asset prices and higher market volatility. This in turn contributed to tightening financial conditions, including for advanced economies, which is a major risk factor in a world of high debt burdens.

Does that mean that a global recession is around the corner? The answer is ‘no’—but the risk of a sharper decline in global growth has certainly increased. Add to this geopolitical worries and disappointing long-term growth prospects, and you have an economic picture with a clear message:

Address remaining vulnerabilities and be ready if a serious slowdown were to materialize.

For most countries, this means harnessing the existing growth momentum to create more policy room to act. The goal is to make economies more resilient and more inclusive, and to increase collaboration:

• Resilient. Reducing high government debt would open the space needed to fight future downturns—but this must be done in a fair and growth-friendly way. Monetary policy should be data-dependent, and exchange rates should be allowed to act as shock absorbers. Developing macroprudential toolkits will help further financial sector stability. This also remains the time for economic reforms to lift growth, especially in labor markets and infrastructure investment.
• Inclusive. If we are to deliver on the promise of the digital revolution—in terms of productivity, employment, and long-term growth—then we must make sure it delivers for people. This includes helping workers displaced by automation, and creating new and better opportunities for women and young people.
• Collaboration. Effective international cooperation comes down to fairness, flexibility, and a commitment to the common good. So let us redouble our efforts to resolve shared problems—from fixing the global trade system, to fighting corruption and tax evasion, to addressing the existential threat of climate change.

The goal is for us to be in a better position for a downturn, which history suggests is somewhere over the horizon, but also for unexpected developments.

The international community must come together to build a brighter future for all citizens. I have called this a “ new multilateralism.” And as our new outlook shows, the need for this kind of cooperation is more urgent than ever.

With that, let me turn it over to Gita.