Leaders need to be resilient in the age of economic shifts caused by Trump and Brexit, Christine Lagarde, managing director of the International Monetary Fund has said.
US economy will see economic growth under Trump
The IMF have revised their growth indicators for the US on the back of tax reforms, and investment in infrastructure under President Trump, the IMF Chief said on January 12th, the first day of the World Government Summit in Dubai.
“We have reasons to be optimistic about economic growth in the United States. It’s likely that there will be a tax reform, its likely that there will be additional investment in infrastructure, and as a result of that it will be very likely that growth will be up in the US.
“We have revised our growth numbers for the United States both in 2017 and 2018. That’s the good news,” she said.
The bad news will depend on the situation of individual countries, she added.
“The more worrying news is that it will have consequences on the rest of the world.
Gulf needs to prepare for the Trump era
Leader in the Gulf, with their currencies pegged to the dollar, need to reduce their debt and follow through with economic diversification plans, Lagarde said.
As US economic policy undergoes significant change, “a country is that is heavily indebted in US denominated bonds and loans is going to be affected,” she said.
“I would say priority number one for countries and policy makers is be resilient, be solid in your public finance have the buffers that will help you in the case of shock.
She said while Gulf countries have learnt their lesson from the 2008 financial crisis, they still have some way to go:
“They’re clearly mindful that having been heavy in debt, and heavily leveraged, has caused them great harm.
“You have to really make sure that your economies are resilient, that they are solid from a public finance point of view, that you watch your fiscal situation, that you reduce your deficit if you have them, and that you diversify both the economies and the sources of income for the state.
Global inequality is at the root of the worldwide voter rebellion
The acceleration of an automated workforce and lagging social mobility for the middle classes has been a key frustration of many voters, Lagarde said.
Those who feel sidelined by the benefits of international trade, and globalization are now forcing governments to focus on grievances that were previously ignored, she said.
“If you look at the average income of people in advanced economies over the last thirty years, it has doubled. If you look at the emerging market economies over the same period it has increased threefold. But we have not looked at those who were badly negatively impacted, and that’s what we need to do.”
“Its hard to actually go down into the trenches and figure out how those people effected by globalization are going to be helped,” she said, listing options such as social safety nets, and life-long training programs, such as those recently instituted in Singapore.
“I think its critically important that governments around the world be also mindful of excessive inequalities.
The EU has not been a total failure
Despite the unraveling of the EU in the dawn of Brexit, Lagarde says it has been a successful peacekeeping measure for European countries, and a happy ending for economies in Ireland, Portugal and Cyprus, who have emerged triumphant from the global economic crisis.
“Those countries, including mine, were at each other’s throats and killing each other for decades. The European Union back when it was created more than 50 years ago was actually intended to address that, and it did, and hopefully will continue to do that in the foreseeable future. “
Global financial regulation is an IMF priority
The international linkages binding the economic fates of countries together, means a replay of the global financial crisis can only be avoided if banks are brought under international regulation.
“I’m going to be very mindful of where international financial regulations go,” she said, adding that banks have a responsibility to be reliable institutions:
“I think that it’s clearly important that the banks, the financial institutions be solid and not excessively leveraged and not allowed to do anything they please, because they have a particular responsibility and they have a benefit as well.
Cyber security is a weak link we need to pay attention to
In the aftermath of a digital heist in 2016, where hackers stole $100 million from the Bangladesh Bank account at the Federal Reserve Bank in New York, governments and banks need to be increasingly cautious, Lagarde said.
“When I talk to governors of Central Banks around the world they all say that top on their mind is cyber-security and cyber-attacks,” she said.
All eyes are on Europe
As the world looks in horror at populist and far-right insurrections around the world, history has taught us that “maverick” leaders like Greek Prime Minister Alex Tsipiras and former Italian Prime Minister Mattio Renzi, aren’t always as bad as you think they are going to be, she said.
“I’m worried as we all are about the outcome of some of these elections. I think we need to be cautious… but we have to respect the elector’s decisions and each of us be guided by our mission.”