In the third downgrade in six months, the IMF cut its outlook for global growth in April to the lowest since the financial crisis, citing downside risks such as the collapse of trade negotiations between the U.S. and China. Even so, Lagarde said Wednesday that the fund still sees the global economy expanding at a 3.3% pace this year.
In its April forecast, the fund projected global growth would pick up in the second half of this year, but that was based on the assumption that the U.S. and China wouldn’t hike tariffs on each other.
“Two months ago, we said be very careful what you are doing with this major growth engine that is trade, because anything that brakes on trade, such as tariffs and non-tariff barriers, is actually going to be a brake on growth,” she said. “Unfortunately, we’re seeing some materialization of these risks.”
Talks between the U.S. and China broke down last month after President Donald Trump accused Beijing of backtracking on its promises, a charge the Chinese government has denied. The Trump administration hiked tariffs on $250 billion of Chinese imports and threatened duties on $300 billion more.
Meanwhile, Trump has threatened to slap tariffs on goods entering the U.S. from Mexico, if Mexican authorities don’t stem the flow of illegal migration into America. The move has opened a new front in Trump’s trade war, rattling markets and casting a cloud over the global economy.