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Economic outlook darkening daily: Lagarde

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June 12, 2018

IMF head Christine Lagarde has launched a thinly-veiled attack on Donald Trump's trade policy.

International Monetary Fund chief Christine Lagarde has led an attack by global economic organisations on US President Donald Trump's "America First" trade policy, warning that clouds over the global economy "are getting darker by the day".

Trump backed out of a joint communique agreed by G7 leaders in Canada at the weekend that mentioned the need for "free, fair and mutually beneficial trade" and the importance of fighting protectionism.

The US president, who has imposed import tariffs on metals, is furious about the United States' large trade deficit with key allies. "Fair trade is now to be called fool trade if it is not reciprocal," he tweeted on Monday.

In response, Lagarde unleashed a thinly veiled attack on Trump's trade policy, saying challenges to the way trade is conducted were damaging business confidence, which had soured even since the weekend G7 summit.

The Washington-based IMF is sticking to its forecast for global growth of 3.9 per cent both this year and next, she said, before adding: "But the clouds on the horizon that we have signalled about six months ago are getting darker by the day, and I was going to say by the weekend."

"The biggest and darkest cloud that we see is the deterioration in confidence that is prompted by (an) attempt to challenge the way in which trade has been conducted, in which relationships have been handled and in which multilateral organisations have been operating."

The IMF managing director spoke after a meeting in Berlin with German Chancellor Angela Merkel and the chiefs of the World Trade Organisation (WTO), the World Bank, the Organisation for Economic Cooperation and Development (OECD), the International Labour Organization and the African Development Bank.

Merkel said on Sunday the EU would implement counter-measures against US tariffs and described Trump's rejection of the G7 communique as "sobering and a bit depressing".

Investors are fearful of a tit-for-tat trade war, though markets were relatively calm on Monday after an early wobble.

"We must ... stop this escalation of tensions. A tit-for-tat process is not going to be helpful," WTO Director-General Roberto Azevedo told the Berlin news conference.

He also criticised the United States' conduct at the WTO.

"The US has been focusing much more on bilateral - unilateral even sometimes - measures, which is not something that is support of the rules-based trading system," he said.

"They have been complaining about the system, they say that they want to improve the system, but we would expect a more constructive approach on their part."

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