Lagarde: World Needs New Model for Globalization

Supporters of globalization need to develop a new way to promote open markets that relies on smaller trade deals and helps people who are feeling left out, International Monetary Fund Managing Director Christine Lagarde said.

“I certainly hope there is not a move toward deglobalization,” Lagarde said Friday in an interview with Bloomberg in New York. “I equally think we have to move toward globalization that has a different face, and which is not excluding people along the way.”

In a wide-ranging interview touching on topics from women’s issues to Brexit, Lagarde laid bare the challenges policymakers are facing in a world beset by sluggish growth and a groundswell in antitrade sentiment. With the prospect of a global trade deal seeming like a distant hope, globalization is “clearly taking a different form” than imagined, she said.

“A new framework has to be invented,” she said. “I hope it can be proposed in a sufficiently attractive way that’s compatible with regional or bilateral agreements.”

US stocks have surged since Republican Donald Trump won the US election last month, as investors bet his administration will boost growth by cutting taxes and raising spending on infrastructure such as roads and bridges. Lagarde welcomed signs of increased infrastructure outlays, while cautioning that it’s “very premature” to predict how the world’s biggest economy will perform under Trump.

Lagarde said she’s increasingly concerned the UK is headed for a “hard” exit from the European Union. “All the noises, all the comments, all the little posturing here and there seem to indicate that we are still looking at a hard Brexit,” she said.

It’s likely negotiations on a new relationship with Europe will take more than two years, she said, adding that uncertainty over the talks is hanging over the British economy, in particular its financial sector.

Some countries also need to stay focused on their own reform drives at home, she said. No matter how Italians vote in a referendum Sunday on the country’s political system, Italy needs substantial changes to reinvigorate growth, including measures to increase productivity and address bad loans in the banking sector, Lagarde said.

Whoever wins next year’s presidential election in France will have to tackle deep problems in the economy, including rigid labor and product markets, she said. France “needs to continue seriously in-depth reforms of its economy”.

The IMF forecasts the global economy will expand 3.1% this year before accelerating to 3.4% in 2017. Still, it has warned that rising political tensions over globalization are threatening to derail a world recovery that lacks a reliable growth engine.