International Monetary Fund will reassess U.S. growth projections

Christine Lagarde speaks Monday morning at the Milken Institute Global Conference at the Beverly Hilton in Beverly Hills.
(Susan Goldman for the Milken Institute / © 2019 by Milken Institute.)

The last time the chief of the International Monetary Fund attended a large gathering of business leaders, she warned that economic “risks are rising” as global growth lost steam. That was the outlook in January from Christine Lagarde at the World Economic Forum in Davos, Switzerland.

But data released last week showed the U.S. economy expanded at a 3.2% annual rate in the first quarter of the year, exceeding forecasts.

On Monday at the Milken Institute Global Conference in Beverly Hills, Lagarde maintained her stance that the world economy is not robust, but she admitted the U.S. results were not expected.

“I think everybody was surprised,” she said during a kick-off event for the four-day conference, which has drawn top government officials, business leaders, investors and others to the Beverly Hilton.


Still, the IMF’s chairwoman warned that the world economy remains in a “delicate moment” — using a phrase she employed a month ago — saying that there is synchronized slowing of growth in 70% of the world.

“I don’t think we should draw lessons from one quarter,” she said. “We should wait. We should analyze the numbers.”

The conference’s first day was partially devoted to the prospects for U.S. and global economic growth — a topic of utmost concern to the audience of fund managers and institutional investors who are seeking any edge they can get to boost their returns.

The very length of this recovery — the U.S. economy this summer could break the record of 120 months for the longest one on record — has many economists warning of an inevitable slowdown.


Indeed, many forecasts say the current April-to-June quarter will see markedly slower growth of the U.S. gross domestic product, perhaps at about a 2% annual rate.

Lagarde said the latest GDP figures would prompt the IMF to reassess its forecast for U.S. growth, which it estimated at 2.3% this year and 1.9% in 2020 — even as she noted the first-quarter data showed business spending on inventory rather than consumption helped drive the economy.

This month, the IMF downgraded worldwide economic growth to 3.3% this year. It had previously cut the projected growth rate to 3.5% in January amid worries over the Chinese economy, as well as the U.S.-China trade war, Brexit and the partial U.S. government shutdown.

It’s the third time the IMF has downgraded its outlook in six months. The 2019 growth rate would be the weakest since 2009, when the world economy shrank.

Lagarde said the surprising growth in the U.S. warranted a close look at the quarter’s productivity figures, because advanced nations have been improving productivity slowly since before the financial crisis. But she said that may be changing because of new technologies.

“If that’s the case, then it’s really encouraging,” she said. “It would mean the growth potential has improved and it would plead for more sustainable growth at higher levels.”

Lagarde was also questioned about the sustained low levels of inflation around the globe and in the United States, where it is under 2%, a phenomenon that has prompted unusual criticism by President Trump of the Federal Reserve. Lagarde said it’s “highly mysterious” why prices have not risen more.

“If I had the answer I would be queen of the economy, which I’m not,” she said to laughter.


Lagarde said while it is unclear why there has not been more inflation she noted economists who have studied the matter cite aging baby boomers who are being replaced by cheaper, younger workers. Also, given the tight labor market, many new entrants — including women — have little work experience and are inexpensive for businesses to hire.

The IMF still expects the pace of inflation to accelerate, she said, but it would “pick up gradually and slowly.”

The U.S. central bank under Jerome H. Powell’s leadership had raised its key interest rate four times last year, to a range of 2.25% to 2.45%, to head off any jump in inflation. The Fed last month announced a pause in rate hikes this year.

The IMF chief defended the U.S. central bank. “They have a mandate. The question is, is the mandate right? The mandate is price stability,” she said.

The Associated Press and Bloomberg contributed to this report.