Christine Lagarde: The Slowdown Of The Chinese Economy

Cross-border capital flows have fallen 65% since the financial crisis, while new production and finance technologies are transforming the landscape for growth and investment. Christine Lagarde discusses the slowdown of the Chinese economy.

Christine Lagarde: The Slowdown Of The Chinese Economy

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Transcript

First of all thank you very much for summarizing the views that were taking at this at this moment. I would like to qualify a teeny tiny bit what you said. We did revise modestly the forecast for 2019. It’s only a point two percent revision. So it’s modest. What we are essentially saying is number one it is coming from the advanced economies. So we don’t have a synchronized movement as we had observed before. There is a synchronicity in the making. And second we are. We have revised downwards modestly because we are seeing those risks that we had identified pretty far along the horizon which prompted me to say sun is still shining. Fix the roof please. Have resilient economies. But we are seeing those clouds coming much closer. And if I may I’d like to just identify two of those one which I think is particularly relevant. And yet it is not affecting the two major players in that risk. And I mean by that U.S. and China and clearly what we see as the major risk at the moment is the development of tensions notably in trade but not only in trade unfortunately and I think between these two the two largest economies on the planet. And we have not revised down our forecast for these two because theU.S. still has the benefit of the stimulus package that it had launched about a year ago. The corporate tax reform that it took a year ago and on the other hand China has taken some modest success and stimulus measures that have helped it sustain a growth that as you said European finance ministers would not be surprised about but would dream off. And I was one of them so that’s true. So those those are the this is the major risks that we are seeing that could precipitate even more market recognition of what has finally been recognised at the end of 2018. Number one. Number two it could if it was aggravated and accelerated Euro precipitate a slower slowdown of the Chinese economy. But by that I mean that the Chinese economy is slowing down is fine. It’s legitimate it’s right and I think it’s very much designed to be under control by the Chinese authorities that the slowdown the excessively fast would constitute a real issue both domestically and probably on a more systemic basis.

Those are the two points that I want to thank you Minister cookies. So for us of course as a as an economy that is very exposed to the global cycles through our integration in the global value chain and the supply chain. Obviously the question of Trade’s functioning smoothly is a predominant issue and if you look at our numbers the vast majority of the growth slowdown has been driven by a one off issues which are weather related and related to to some elements of the new rules around the automotive industry. But of course the overriding concern to us is the is on the one side the exposure to slowdown in growth to the global economy but also the less smooth functioning of world trade be it through the threat of increased tariffs be it through all of the potential disruptions that we’re facing related to Brexit and its effects on the supply chain. So those are the things that we are very worried about and are looking at most carefully. On the other side of course the question is how do we deal with these issues and for us the key element there is sending signals of increased unity. For us of course predominantly in the EU and we’ve achieved some progress in that sense with some implementations of the global financial reforms. With respect to your questions on strengthening the robustness of the banking system in December Europe agreed on quite far reaching implementations and deepening of the European Monetary Union. But of course we need to go much much further than that because the European market as opposed to the Chinese and U.S. financial markets is still very fragmented and a lot still needs to be done both on the risk sharing within the banking union the capital markets union and the fiscal cooperation.

Since you’ve taken me down this path and I hate to interrupt the flow but why doesn’t Europe yet have a targeted fiscal instrument for supporting individual countries in the eurozone that may be suffering fiscal.

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