Lagarde On Trump-Xi Tariffs While Tun M Buffs Up Malaysia

As the prospects of more trade tariffs loom over the horizon, both leaders have been urged to reach a trade deal - or risk exerting more downward pressure on the global economy.

A drawn out fight between the world’s two largest economies and the widely-feared subsequent collapse in trade talks, with both sides ratcheting up tit-for-tat punishment, has put a damper on growth.

The International Monetary Fund (IMF) cut its outlook for global growth to 3.3 percent for 2019 - a third downgrade since the beginning of the year - due in part to the trade tensions.

It warned that US-China tariffs, those already implemented and others proposed, could cut global economic output by 0.5 percent in 2020.

In an exclusive TV interview with Astro AWANI ahead of the G20, IMF Managing Director Christine Lagarde says risks are still ‘skewed towards the downside’ but the fund does not foresee a recession in its baseline for the year.

“My sense is that even if the two presidents were to meet in Osaka, it is not sure that they would actually finalise and complete the discussions at that time - there might be follow-up discussions,” says Lagarde on the Trump-Xi meeting.

“I think the potential 25 percent tariffs on all trade between the US and China is clearly the downside risks that we are talking about,” she adds.

Heading into the G20, both the US and China have been trying to downplay expectations. Market observers have pointed out that an enforceable U.S.-China deal will likely remain elusive - perhaps even until after the US presidential election. But a reconciliatory tone from the two leaders from G20 will send a big - even if tentative - relief to the markets on tenterhooks.

We asked Lagarde her expectations of a Trump-Xi meeting:

“The expectations - and the hope of many - is that that will not come to pass because they will find an arrangement that will both apply to the exchange and the trading of goods between the two countries but also some more fundamental issues that would matter to all partners in the trade; having to do with intellectual property, transfer of technologies, subsidies, state-owned enterprises role in trade, Those are important questions that cannot be resolved very, very easily,” she adds.

“We don’t have a recession in our baseline. We are still forecasting 3.3 percent (growth) for this year.

“Our forecast is slightly above that for next year. So, we are even considering a possible improvement in 2020 but if there was a 25 percent tariff applying to the entire trade between the United States and China, that would probably mean a haircut on that growth - about half a percentage point.”

Watch the full interview between Christine Lagarde and Astro AWANI’s Cynthia Ng here. Lagarde also gives her assessment of the Malaysian economy and views on Tun Dr Mahathir Mohamad’s leadership.

On Tun Dr Mahathir

“He stands out as someone who has the expertise, the vision and wisdom. He doesn’t mind speaking his mind and I think he has a very decisive voice which makes the groups in which he participates more assertive than they were in the past.”

“If I look at the recent ASEAN summit for instance, that summit and its communique were far more assertive than they were before, and I think he’s playing an important role in that respect.”

On Malaysia's Economic Resilience

“We think that the Malaysian economy has significant strength. It has a good track record of success in terms of diversification. If you look at it, the country could have just lived on its commodities extraction. It has gone way further than that, it has diversified, it has been more inclusive, it has used innovation in a very productive way for society.”

“Where is stands at the moment, it clearly needs to have a steady fiscal consolidation going forward. It needs to possibly move towards reduction of its debt in order to be able to resist shocks, should they come in the future.