Lagarde: Trade Main Global Growth Risk, Recession Unlikely

Incoming European Central Bank President Christine Lagarde said the global economy is likely to dodge an outright contraction, though the trade tensions remain the top threat to the growth outlook.

“It is not in the baseline to have a recession,” Lagarde said in a Bloomberg Television interview on Tuesday. “That said, it’s mediocre growth, it’s at risk because of essentially one major threat, which is the trade war that we see developing or brewing and the uncertainty it generates for investors.”

The comments from the former International Monetary Fund leader come as she prepares to take the helm of the ECB at a precarious time for Europe and the global economy alike, as well as growing divisions inside the central bank.

The IMF has made a series of cuts to its global growth estimate for this year, cutting it to 3.2% in July, which would be the weakest pace since the financial crisis. The fund will released updated economic projections next month.

In what could be seen as a warning to future colleagues unhappy with the direction the ECB has taken under President Mario Draghi, Lagarde said the one word of advice she would take with her is “teamwork.” She said that at the IMF, officials could disagree but once a decision is taken, they all moved together.

The end of Draghi’s tenure has been plagued by an outbreak of public dissent unprecedented in its scale as policy makers from Germany, the Netherlands and Austria went on the record to say they disagreed with this month’s decision to resume quantitative easing. Draghi used an appearance at the European parliament this week to say such out-and-out disagreement could undermine the effectiveness of the stimulus.

Lagarde, a former French finance minister who had led the IMF since July 2011, said her lack of direct central banking experience would not be a handicap in taking charge at the ECB. She singled out ECB Chief Economist Philip Lane for particular praise.

“There’s such a strong and intelligent and powerful staff within the institution that I will get the right support, the right expertise,” Lagarde said. “There’s a fantastic member of the board, Philip Lane, who was himself former governor of the central bank of Ireland, and the Board members are talented in their own respects.”