David Lipton, the first deputy managing director of the IMF, warned of “storm clouds building” as he spoke of fears that “crisis prevention is incomplete”. The warning from Mr Lipton comes more than a decade after the Lehman Brothers investment bank collapsed in September 2008, sparking financial chaos as Wall Street was plunged into turmoil. The IMF has already slashed its global growth forecast as the international body pointed the finger at trade war tensions as part of its reason for predicting slower economic expansion. Back in October, the IMF was predicting 3.7 percent global growth in both 2018 and 2019.
This is down from its July forecast of 3.9 percent growth for both years.
Speaking in London, Mr Lipton said: “Over the past two years, the IMF has called on governments to put in place policies aimed at just that goal — as we have put it, ‘fix the roof while the sun shines’.
“But like many of you, I see storm clouds building, and fear the work on crisis prevention is incomplete.”
Mr Lipton urged governments to tackle foreseeable problems together as he warned individual nations alone would not be able to combat the next recession.
Mentioning tactics such as cutting interest rates to boost the economy, Mr Lipton urged: “We ought to be concerned about the potency of monetary policy.”
The deputy IMF head also spoke against high levels of borrowing by governments, suggesting it limited their ability to slash taxes and increase spending.
Touching on the trade war between China and the US, Mr Lipton urged China to reevaluate trade policies, with the nation having developed into an economic powerhouse worth $16 trillion.
He commented that this marks a staggering rise from the $16 trillion economy in place when Beijing joined the World Trade Organisation in 2001.
While Mr Lipton called on China to lower its trade barriers, he also suggest the US to ease off pressures against Beijing.
He said: “China has many reforms that it could carry out that would be in its own interest and in the interest of countries around the globe.
“But China feels they can’t take those steps, as they put it, with a gun to their head, in the midst of trade tensions.”
Hopes have been raised in recent days of the trade war between the two nations cooling down after US President Donald Trump made positive comments about a deal with his Chinese counterpart, Xi Jinping.
In an interview with Reuters, President Trump said talks were taking place with Beijing by phone and he would not raise tariffs on Chinese imports until he was sure about a deal.
US President Donald Trump imposed a 10 percent tariff on $200 billion (£153 billion) worth of Chinese goods in September.
The US simultaneously threatened to add tariffs to a further $267 billion (£205 billion) of products.
This saw China retaliate with 10 percent tariffs on $60 billion (£46 billion) of US imports.
The tariffs stem from the Trump administration’s demands that China make sweeping changes to its intellectual property practices.
The US also wants Beijing to rein in high-technology industrial subsidies, open its markets to more foreign competition and take steps to cut a $375 billion (£283 billion) US goods trade surplus.
The IMF warned of “large challenges” ahead “to prevent a second Great Depression” in a report released in October.
In their report, the downcast predictions spoke of cheap interest rates and surging debt levels as potential triggers for economic chaos.
The IMF Global Financial Stability report read: ”The extended period of ultralow interest rates in advanced economies has contributed to the build-up of financial vulnerabilities.
“The large accumulation of public debt and the erosion of fiscal buffers in many economies following the crisis point to the urgency of rebuilding those defences to prepare for the next downturn.”