She also said countries should use the global upswing to implement reforms to make growth more “solid, sustainable, balanced and inclusive”, in a statement issued at the closing of the G20 finance ministers and central bank governors meetings in Buenos Aires, Argentina.
Lagarde said: “I joined others in reiterating that we should avoid the temptation of inward-looking policies and, rather, work together to reduce trade barriers and resolve trade disagreements without resorting to exceptional measures.”
Earlier this week, G20 finance ministers and central bank governors met at the G20 summit – the first under Argentina’s leadership – to discuss everything from international tax challenges, such as digitalisation and transparency and the opportunities of technology, such as crypto-assets, as well as trade and the global economy overall.
A number of countries, including Germany and Argentina, stressed that they would continue to fight for free trade following US president Donald Trump’s tariffs on steel and aluminium.
The global economic recovery has continued to strengthen, with growth momentum involving more than 80% of total G20 GDP, Lagarde said.
“Reform is all the more important because the cyclical forces carrying current growth will eventually wane and medium-term prospects remain weak, especially in advanced economies.
“Beyond the short term, risks are accumulating—for example, debt levels are high in advanced economies and continue to increase in many emerging market and low-income countries; and global imbalances persist—and could be exacerbated by the policy mix in some of the major economies.”
She added that “we should fix the roof while the sun shines”, as debt continued to build up in the public and private sectors around the world following a long period of “easy financial conditions”.
Lagarde went on: “This creates financial vulnerabilities, especially as monetary conditions tighten.
“To mitigate these risks, countries should take advantage of the current momentum by building fiscal buffers—creating more room to act in the next downturn—and by making active use of macro- and microprudential policies. Flexible exchange rates can help mitigate external shocks.”
