The International Monetary Fund said more work is needed to further reduce global trade imbalances amid increasing tensions, while issuing a fresh warning that such conflicts are weighing on the global economy.
“It is imperative that all countries avoid policies that distort trade,” the IMF said in its annual External Sector Report released Wednesday in Washington, D.C.
“Against a backdrop of escalating trade tensions, greater urgency is needed in tackling persistent excess imbalances.”
The report comes as the Washington-based fund confronts a surge in protectionism around the world that’s seen dragging on global growth, with output slowing in major economies from China to Europe and Mexico.
IMF leadership also is in flux with Managing Director Christine Lagarde set to succeed Mario Draghi as president of the European Central Bank.
While the U.S. trade war with China has cooled with a recent truce and renewed talks, the world’s second-largest economy has slowed amid President Donald Trump’s tariffs.
China’s government said this week that the economy eased to the weakest pace since quarterly data began in 1992, highlighting effects of the ongoing trade dispute with the United States.
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“With prolonged trade uncertainty, it’s weighing on business sentiment everywhere in the world, which then has implications for global demand,” IMF Chief Economist Gita Gopinath said at a news conference Wednesday.
“We welcome the trade truce between the U.S. and China that came toward the end of June at the G-20 meetings, and we would hope that the world would continue to work cooperatively to not only not trigger these trade tensions but also to address the issues with the multilateral trading system.”
The report urged countries to refrain from using tariffs to target bilateral trade balances as such actions “are costly for global trade, investment, and growth, and are generally not effective in reducing external imbalances.”
David Lipton, the IMF’s acting managing director, on Tuesday urged central banks and other policymakers to be ready with more stimulus if a global economy that’s already slowed by a trade war deteriorates.
“All need to be ready in case there is a significant slowdown to respond much more forcefully,” Lipton said in a Bloomberg TV interview.