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Christine Lagarde, managing director of the International Monetary Fund (IMF), left, speaks with Mario Draghi, president of the European Central Bank (ECB) as world finance chiefs gather in Washington while warily looking at the French presidential elections starting on Sunday. Photo: Bloomberg

World finance chiefs fret over results of French presidential race which may bring Le Pen to power

The global economy is rolling with the punches thrown by political populists in Europe and America -- at least until this weekend.

The first round of the French election on Sunday that has the potential to put anti-euro candidate Marine Le Pen within reach of the presidency is just the latest in a series of geopolitical risks that, so far, haven’t turned into a serious brake on growth.

Global finance ministers and central bank governors gathered in Washington this week for the International Monetary Fund’s spring meetings exuded an upbeat vibe, while warning that the wheels could come off the recovery at any moment.

“Broadly there was a sense the global economy is looking brighter,” Canadian Finance Minister Bill Morneau said, reporting on a discussion of Group of 20 ministers. “We all recognise the importance of reducing uncertainty in that outlook.”

Canadian Finance Minister Bill Morneau speaking about the cautious optimism most world finance officials have about the global economy. Photo: Reuters

That’s focusing minds now on how economic and foreign policy in an age of populist rhetoric actually turns out -- as opposed to what’s promised in election campaigns.

US President Donald Trump’s about-face on labelling China a currency manipulator has helped ease concerns that the global economy is facing a negative trade shock, and the continued support of the French public for membership of the region’s single currency in spite of Le Pen’s pledges to quit it is damping jitters about the future of the euro.

“We need to make our economies more robust against potential future crises,” German Finance Minister Wolfgang Schaeuble said at a G-20 press briefing on Friday. “That means focusing on structural reforms rather than stimulating demand by raising debt levels.”

Wolfgang Schaeuble, Germany's finance minister, listens during a Group of 20 (G-20) press conference on the sidelines of the spring meetings of the International Monetary Fund (IMF) and World Bank in Washington. World finance ministers are carefully looking at the French presidential elections starting on Sunday. Photo: Bloomberg

A clearer view of political risks is being aided by a stronger global performance.

The IMF raised its forecast for global growth to 3.5 per cent this year, up 0.1 percentage point from January, the Washington-based fund said in the latest update to its World Economic Outlook this week.

China’s first-quarter output posted its first back-to-back acceleration in seven years, momentum in the euro area sped up to the fastest in six years, and the US economy is strong enough to give Federal Reserve officials reason to be confident of two further rate rises this year.

“Compared with three months ago, I feel much more optimistic,” Changyong Rhee, director of the IMF’s Asia-Pacific Department, said in an interview in Washington. That said, with the design of many of the Trump administration’s policies as yet unclear, structural weaknesses endemic in the euro area and the risk of a conflagration over North Korea still bubbling, it was too early for some delegates to sound the all clear.

Xiao Jie, China's finance minister, stands before participating in a Group of 20 (G-20) finance ministers and central bank governors in Washington. Photo: Bloomberg

Rhee said he still sees “lots of downside risks.”

“We hope things are going to improve in terms of growth but I don’t think we can say that with a level of confidence,” Colombian Finance Minister Mauricio Cardenas said at a discussion in Washington.

The Trump administration said it would investigate steel imports, a move that could yet inflame trade tensions with China. IMF Managing Director Christine Lagarde and US Treasury Secretary Steven Mnuchin will square off on a panel on Saturday that could give further clues as to the direction of US policy. Mnuchin said a plan to rework the US tax code will be ready soon, sending stocks higher.

“Everyone is optimistic, everyone sees that growth momentum is picking up,” IMF First Deputy Managing Director David Lipton said. “And the question on everyone’s minds is whether the uncertainties -- some of them are economic, some of them are political, some of them are geopolitical -- will undermine or derail this recovery, and what can we do to limit the chance that this happens.”

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