September 23, 2019 / 2:45 PM / 2 months ago

Incoming ECB President Lagarde: Trade tensions biggest threat to global economy

WASHINGTON (Reuters) - Threats to trade are the biggest hurdle for the global economy, but the U.S. economy, the world’s largest, remains in a good place, Christine Lagarde, incoming president of the European Central Bank, told CNBC in an interview broadcast on Monday.

FILE PHOTO: Christine Lagarde, the next president of the European Central Bank, speaks to the European Parliament's Economic and Monetary Affairs Committee in Brussels, Belgium September 4, 2019. REUTERS/Francois Lenoir

Lagarde, who headed the International Monetary Fund since 2011, told CNBC that tariffs imposed by the United States and China were expected to shave 0.8% off global economic growth in 2020, weighing like a “big, dark cloud on the global economy.”

At the same time, Lagarde said in an interview taped on Friday that the U.S. economy was “in a very good place.”

The European Parliament last week backed Lagarde as the next president of the European Central Bank, the first woman in the post. Lawmakers voted 394 in favor, 206 against and with 49 abstentions on Sept. 17.

EU leaders selected the former antitrust lawyer in July to replace Mario Draghi from Nov. 1 at the helm of the bloc’s most powerful financial institution. EU leaders will formalize her appointment in mid October for an eight-year term.

Lagarde expressed optimism about Europe’s economic prospects given what she called massive changes since 2011 in terms of increased supervision of financial institutions, better capitalization and lower financing costs.

But she noted policymakers now had less space to make fiscal and monetary adjustments, adding economic risks would come from “somewhere where we don’t anticipate them.”

Lagarde said Europe would be in “good shape” if the euro area moved to create a real banking union and strengthen capital market, and there were indications this was in process.

“If the euro area can strengthen, and there are indications that this could be on the short term horizon, with a real banking union, with a better capital market which has euro area dimensions and good depth, and if there is more of a joint effort to steer the economy of Europe, I think that region of the world will be in good shape,” she said.

Addressing complaints about the slow the pace of change in the euro zone, she said decisions take longer there because policy must be coordinated among 19 countries.

“My hope is that it’s not just about monetary (policy), it’s also about fiscal, it’s also about structural reforms, in order to unleash the potential, in order to help enterprise, in order to help households to develop, to hire, to invest,” she said.

Reporting by Andrea Shalal and Lisa Lambert, Editing by Franklin Paul and David Gregorio

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