Lagarde Says Protectionism Is Darkest Cloud Over World Economy

(Bloomberg) -- The threat of trade protectionism is the biggest concern looming over a solid upswing in the global economy, IMF Managing Director Christine Lagarde said.

The “darkest cloud” on the economic horizon is the “determination of some to actually rock the system that has actually presided over the trade relationships that we have all undertaken and enjoyed to some extent over the last many decades,” said Lagarde. She was speaking on a panel with world leaders including Russian President Vladimir Putin, Japanese Prime Minister Shinzo Abe, French President Emmanuel Macron and China's Vice President Wang Qishan in St. Petersburg, Russia, on Friday.

“The good news today is that the sun is shining on the global economy. We went through a decade of difficult time, and now, we have an economy that is doing well," Lagarde said.

Lagarde said her list of worries also include high levels of sovereign and corporate debt and tighter financial conditions in emerging markets from monetary tightening, particularly in the U.S.

The IMF chief has repeatedly warned against the risks of a global trade war amid aggressive steps by President Donald Trump to crack down on what he sees as the unfair trading practices of U.S. competitors. The Trump administration on Wednesday launched a probe to determine if imported cars imperil national security, a move that could lead to higher tariffs, and next week Commerce Secretary Wilbur Ross will be in Beijing for the next round of trade negotiations to ease tensions between the world's two largest economies.

"It would be a great mistake to resort to protectionism and unilateralism. This would be a self-inflicted wound,” Lagarde said. “Nobody wins a trade war.”

The IMF projects the global economy will grow 3.9 percent this year and next, the fastest pace since 2011. Beyond that horizon, it's more pessimistic, predicting growth will fade as central banks raise interest rates, U.S. fiscal stimulus fades and China's gradual slowdown continues.

The IMF, which has 189 member countries, was conceived during the Second World War to oversee the international monetary system and promote open-market policies that drive growth.

To contact the reporter on this story: Andrew Mayeda in Washington at amayeda@bloomberg.net

To contact the editors responsible for this story: Brendan Murray at brmurray@bloomberg.net, Sarah McGregor

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