TOKYO: Protectionist sentiment has not yet gone beyond mere words, International Monetary Fund Managing Director Christine Lagarde said on Wednesday, but would hurt Asian economies with open and free markets if it did.
Lagarde brushed off the concerns of some investors that the divergent monetary paths of major central banks could disrupt Asian capital flows, stressing that policymakers had the tools and means of communication needed to prevent market upheaval.
Global policymakers have raised concerns over US President Donald Trump’s “America First” agenda that aims to slash US trade deficits, via which Washington appears to be walking away from or extensively renegotiating multilateral trade arrangements in favor of country-by-country deals.
Lagarde said that while protectionism had not so far been seen “other than in words,” trade deals must be improved in a way that included people who felt left behind by globalization.
“If there was protectionism, it would hurt economies that are very open, and based on free and fair movement of goods and services,” Lagarde said during a visit for the 20th anniversary of the IMF’s Asia-Pacific regional office in Tokyo.
“To continue to have trade as a global engine for growth, trade deals need to be improved,” she said, adding trade pacts had to include rules on labor practices and intellectual property.
Lagarde said trade deals must be “rules based” and make use of existing dispute-settlement mechanisms such as the World Trade Organization, though she declined to say whether Trump’s trade policies complied with these rules.
The IMF head said there had been no massive capital outflows from Asia thanks to central bankers’ cautious approach and clear communication around their policy shifts.
“We believe these conditions can help to ensure that monetary policy changes do not provoke unnecessary capital flow movements,” she said.
Lagarde said she would draw a “slight distinction” between the pace of policy shifts to be adopted by the US Federal Reserve and the European Central Bank.
She noted that the Fed was expected to raise interest rates steadily in coming months, while the European Central Bank had stressed that its quantitative easing would continue and interest rates would remain low for a long period of time.
“You can’t put the two — the Fed and the ECB — in the same basket,” she said.
Lagarde said Bank of Japan Governor Haruhiko Kuroda was acting appropriately by pledging to maintain the BOJ’s massive stimulus program until inflation accelerates.
“One of the strengths of central bankers is to be very clear in their communication and determined in their resolve, which clearly Governor Kuroda has demonstrated,” she said.
“One thing that is unanimously recognized is his resolve and clear determination to stay the course and to adjust when the circumstances would so require.”
IMF’s Lagarde warns protectionism, while now just words, may come to hurt Asia
IMF’s Lagarde warns protectionism, while now just words, may come to hurt Asia
Global brands shut Middle East stores as conflict causes chaos
- Luxury brands and retailers close stores in Middle East
- Conflict threatens the region that has been luxury’s fastest growing
- Mass-market retailers monitor situation, adjust operations in region
PARIS: In Dubai and other major Middle Eastern shopping hubs, many stores are closed or operating with a skeleton staff as the escalating conflict in the region causes chaos for businesses and travel.
The US-Israeli air war against Iran expanded on Monday with no end in sight, with Tehran firing missiles and drones at Gulf states as it retaliates for a weekend of bombing that killed Iran’s supreme leader and reportedly killed scores of Iranian civilians, including a strike on a girls’ primary school.
Chalhoub Group, which runs 900 stores for brands from Versace and Jimmy Choo to Sephora across the region, said its stores in Bahrain were closed, while other markets, including the UAE, Saudi Arabia, and Jordan remained open though staff attendance was “voluntary.”
“We operate with a lean team formed of members who volunteered and feel comfortable to come to the store,” Chalhoub’s Vice President of Communications Lynn al Khatib told Reuters, adding that the company’s leadership team personally visited Dubai Mall and Mall of the Emirates on Monday morning to check in with workers.
E-commerce giant Amazon closed its fulfillment center operations in Abu Dhabi, suspended deliveries across the region and instructed its employees in Saudi Arabia and Jordan to remain indoors, Business Insider reported on Monday, citing an internal memo.
Gucci-owner Kering said its stores were temporarily closed in the UAE, Kuwait, Bahrain and Qatar and it has suspended travel to the Middle East.
Luxury growth engine under threat
Shares in luxury groups LVMH, Hermes, and Cartier-owner Richemont were down 4 percent to 5.7 percent on Monday afternoon as investors digested the knock-on impacts of the conflict.
The Middle East still accounts for a small share of global spending on luxury — between 5 percent and 10 percent, according to RBC analyst Piral Dadhania. But the region was “luxury’s brightest performer” last year, according to consultancy Bain, while sales of expensive handbags have stalled in the rest of the world.
Now, shuttered airports have put an abrupt stop to tourism flows into the region and missile strikes — including one that damaged Dubai’s five-star Fairmont Palm hotel — are likely to dissuade travelers, particularly if the conflict drags on.
“If you assume that it’s a $5 billion to $6 billion (travel retail) market and let’s say it’s going to be shut down for a month, we are talking about hundreds of millions of dollars that are definitely at risk,” said Victor Dijon, senior partner at consultancy Kearney.
If Middle Eastern shoppers cannot travel to Paris or Milan, that could also hurt luxury sales in Europe, he added.
Luxury brands have been investing in lavish new stores and exclusive events across the region. Cartier unveiled a “high-jewelry” exhibition in Dubai’s Keturah Park just days before the conflict started.
Cartier and Richemont did not reply to requests for comment.
Luxury conglomerate LVMH has also bet big on the region. Last month, its flagship brand Louis Vuitton staged an exhibition at the Jumeirah Marsa Al Arab hotel, and beauty retailer Sephora launched its first Saudi beauty brand.
LVMH does not report specific figures for the region, but in January Chief Financial Officer Cecile Cabanis said the Middle East has been “displaying significant growth.” LVMH did not reply to a request for comment on how its business may be impacted by the conflict.
The Middle East has also attracted new investment from mass-market players. Budget fashion retailer Primark said in January that it plans to open three stores in Dubai in March, April and May, followed by stores in Bahrain and Qatar by the end of the year.
“Primark is set to open its first store in Dubai at the end of March but clearly this is a fast-moving situation which we are monitoring closely,” a spokesperson for Primark-owner Associated British Foods said.
Apple stores in Dubai will remain closed until Thursday morning, the company’s website showed, while Swedish fast-fashion retailer H&M said its stores in Bahrain and Israel are closed.
Consumer goods group Reckitt has told all employees in the Middle East to work from home, temporarily closed its Bahrain manufacturing site and suspended all business travel to the region until further notice.
