Lagarde said if the US-China trade war stopped now the direct hit to their economies would be 'minimal'

Washington (AFP) - Despite some uncertainty and market volatility, the United States is not likely to see an economic contraction in the near term, IMF chief Christine Lagarde said Thursday.

On a day when Wall Street dropped three percent before recovering some ground, Lagarde said “there’s a question mark about growth prospects going forward” but the concerns are “a little bit overdone.”

“I don’t see the elements of recession in short order,” she said on CNBC, and the IMF is forecasting 3.7 percent global growth next year which “is not bad.”

However, she said the Federal Reserve was “probably going to slow down” its rate increases as they look at economic data.

The US central bank has raised its benchmark lending rate three times this year and is widely expected to do so again on December 19 but has signaled that it may slow or even pause next year as the economy loses some steam.

Lagarde declined to make a recommendation to Fed policymakers but said their moves would depend on “their reading of the state of the economy” and should be “well communicated” since US monetary policy has an impact on economies around the world.

Asked about the impact of the tariff battle between the United States and China, Lagarde said if it stopped now the direct hit to their economies would be “minimal.”

But she warned that “if you add the indirect damage if you’re factoring confidence, market apprehension and uncertainties…then you’re talking about much more than that.”

The Washington-based crisis lender has calculated that an escalation of the trade war could cut eight-tenths of a point off global growth by 2020, she said.

But she said the weekend truce between the United States and China gave reasons for optimism and the 90-day time frame was enough to establish a framework for further negotiations.

However, with complex issues like intellectual property rights, “it’s going to take a long time.”