She said a trade war, despite offering a seemingly "short-term fix" which looks like a great opportunity for certain countries, would not necessarily develop into a long-term benefit with regards to expenditure and foreign direct investments, among others.
"We are concerned that trade tensions could actually have a significant impact on global growth, we fear a reduction of 0.5 per cent of global growth in 2020 as the result of a 25 per cent tariff increase on all the trade relating to the US and China.
"Given the slow growth that we have observed this year, we hope that growth would not be reduced as a result of trade tensions,” she told a joint press conference with Bank Negara Malaysia governor Datuk Nor Shamsiah Mohd Yunus in conjunction with her two-day visit to Malaysia here on Monday.
Lagarde said that trade wars or trade tensions should not be associated with increased wellbeing of the people, additional growth, or predictability and certainty.
She said as a resulting of trade wars, investors would not invest and traders would not trade, while consumers would not consume.
Lagarde, who will be representing the IMF at the G20 conference in Osaka, Japan next week, said that any positive move towards resolving the current trade tensions between the US and China will certainly be good news for the global economy.
She said that IMF was pleased to see that Malaysia's 2019 budget has returned to fiscal discipline, as stated in the IMF's 2019 Article IV Consultation report, noting that the country is rebuilding buffers, just in case there are rainy days ahead.
Later on MOnday in her scheduled meeting with Tun Dr Mahathir Mohamad, Lagarde said she will be exchanging views and compare notes with the prime minister concerning anti-corruption and the government agenda, among others.
"Governance principles must be really entwined and embedded in the legal system of Malaysia because that is the best way to make sure it will survive the passing of time and the change of authorities over the course of the many decades to come. It’s a legacy that is critically important. I’m sure Dr Mahathir would be pleased to see his legacy embedded in the legal system.
"As I said earlier today at Universiti Malaya, Malaysia’s economy would be unsuccessful unless it is as tasty and rich as laksa, which was the theme of our remarks this morning, with additional ingredients including governance, the fight against corruption, as well as higher and better education,” she added.
Lagarde also expressed support for the prime minister’s statement that intra-Asean trade should be further enhanced to ensure Asean economies continue to expand and remain globally competitive.
"In most regions of the world, we support better integration. This is certainly the case, to give you another example outside the (Asean) region, if you look at the other macro countries... there are regional integration arrangements, that are supportive of better and more trade and more joint projects, including in infrastructure.
"To this extent, this region, however diverse and however scattered it is geographically, can improve its intra-regional relationships. I think that it is an inner strength that you simply cannot ignore so we are very supportive of this initiative,” she said.
Meanwhile, Nor Shamsiah said under Lagarde’s leadership, significant effort had been made to increase the representation of emerging economies at the IMF in recognition of their growing importance to the global economy.
"IMF has also been very appreciative of the views and approaches of emerging economies in addressing policy challenges,” she said.
These include broadening issues of work that cover governance, corruption, inequality, climate change and national linkages to the larger economy. - Bernama
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