Institutions react to concern that Brexit vote and calls for protectionism in US are part of a backlash against globalisation
The leaders of the International Monetary Fund and the World Bank have launched a strong defence of open markets and free trade, as concern grows that the Brexit vote and calls for protectionism in the US presidential election represent a backlash against globalisation.
Christine Lagarde, the IMF’s managing director, said international trade had been a force for good in the past few decades but that without a more equal division of the benefits of growth there was a risk of barriers going back up.
As part of a concerted push back against protectionism, the World Bank’s president, Jim Yong Kim, said China had lifted 700 million people out of poverty as a result of trade and opening its economy to competition.
Kim said the UK’s vote to leave the European Union, the US presidential race and looming elections in Europe were adding to uncertainty. “These are all risks. Uncertainty is normally very bad for most developing countries.”
Outlining her global policy agenda, Lagarde said: “Policymakers should act and use a balanced mix of all policy levers to revive demand and raise productivity, and ensure the gains from technology and globalisation – which have led to unprecedented global welfare gains in recent decades – are shared more broadly.
“A retreat from globalisation and multilateralism is a serious risk at a time when international cooperation and coordination are as critical as ever.”
Lagarde said governments should press ahead with attempts to secure multilateral trade deals, despite the difficulties involved, while providing help for workers adversely affected by globalisation and technological change.
She refused to comment on the American election, but made clear her opposition to Donald Trump’s demand that protectionism should be used to repatriate jobs to the US.
“The rhetoric against trade would do harm to the economy. I call it economic malpractice,” she said.
The IMF believes the political shifts that have led to huge support for Trump and the shock Brexit vote are the biggest current threat to a fragile global economy.
Lagarde welcomed the UK’s better-than-expected performance since the Brexit vote.
Ahead of the EU referendum, she said the outcome would either be “pretty bad or very, very bad”, but speaking in Washington on Thursday she said the IMF had envisaged both mild and adverse scenarios.
“I am encouraged that, because of good policies and the cooperation of central banks, it is currently the mild scenario and not the adverse scenario.”
She has welcomed the government’s announcement that negotiations on Britain’s departure from the EU will begin by March next year, but said this week’s sharp fall in the pound was the result of uncertainty about what Brexit would mean for the financial services sector and for trade.
Following Theresa May’s attack on ultra-low interest rates and quantitative easing, Lagarde said: “We currently observe that monetary policy has been under a lot of pressure to act. It has been the first port of call. It has acted in many countries in isolation, which is not helpful.
“All policies – monetary, fiscal and structural – have to come together. It can’t just be left to central banks. They have used unconventional policies to explore unchartered territories with benefits so far. But it can’t just be monetary policy.”
Kim said heightened political uncertainty coincided with the highest number of poor countries in recession since the global slump of 2009.
He said growth in sub-Saharan Africa was expected to be 1.6% this year and 2.9% in 2017, insufficient to keep up with population growth of 3% a year. “If growth can’t keep up with population growth it is essentially negative growth”, he said.
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