IMF's Lagarde warns G20 to avoid 'self-inflicted' wounds

"Above all, we should collectively avoid self-inflicted injuries," said IMF Managing Director Christine Lagarde in a blog post. (AFP/Nicholas Kamm)

In a message to the Group of 20 finance ministers ahead of their meeting this week, Lagarde said the world economy is on the road to recovery, "But it would be a mistake to assume that it will automatically return" to good health.

"Above all, we should collectively avoid self-inflicted injuries," Lagarde said in a blog post. "This requires steering clear of policies that would seriously undermine trade, migration, capital flows, and the sharing of technologies across borders."

The message seemed targeted primarily at US President Donald Trump, who in his first days in office has imposed controversial immigration restrictions, and threatened unilateral trade sanctions against the closest US trading partners, as well as slamming multilateral trade deals and organizations.

"Such measures would hurt the productivity, incomes, and living standards of all citizens," Lagarde said.

The IMF in January forecast a pickup in global growth to 3.4 per cent this year and 3.6 per cent in 2018, compared to 3.1 per cent last year. This is partly due to expectations of more growth-friendly policies in the United States, as well as better outlook for the euro area, the United Kingdom and Japan.

Lagarde said "the recent strengthening of activity suggests that the world economy may finally snap out of its multi-year convalescence."

However, she cautioned, "maintaining the positive growth momentum continues to require supportive macroeconomic policies," since demand is still weak and inflation not reliably back to the desired target in many advanced economies.

The United States has fewer problems with demand, and Lagarde repeated that plans for increased infrastructure investment could help boost US growth, along with "efficiency-enhancing corporate tax reform, and improvements in education," and that in turn would be good for the global economy.

G20 finance ministers and central bankers meet in Baden-Baden, Germany on Friday and Saturday. It will be the first time US Treasury Secretary Steven Mnuchin participates in the gathering.