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IMF chief: World in ‘synchronized slowdown’

October 10, 2019

International Monetary Fund (IMF) Managing Director Kristalina Georgieva delivers a speech previewing the key issues to be addressed in the Annual Meetings in Washington, D.C., on Oct. 8, 2019. (AFP Photo)

WASHINGTON, D.C.: Grinding trade disputes are undermining the global economy, which is set to see its slowest growth in nearly a decade, the new chief of the International Monetary Fund (IMF) said on Tuesday.

Research shows the impact of the trade conflict is widespread and countries must be ready to respond in unison with cash infusions, Kristalina Georgieva said in her first speech as the multilateral institution’s managing director.

She also called for an increase in carbon taxes to address the other challenge facing the global economy: climate change.

“In 2019, we expect slower growth in nearly 90 percent of the world. The global economy is now in a synchronized slowdown,” Georgieva said in a speech ahead of IMF-World Bank autumn meetings next week.

“This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade,” she added.

She said the IMF was cutting its forecasts for growth this year and next. Previously, the world economy had been projected to expand by 3.2 percent in 2019 and 3.5 percent in 2020.

The fund is due to release details in its updated World Economic Outlook on October 15.

While trade tensions had been talked about as a danger to the economy, “now, we see that they are actually taking a toll,” Georgieva said.

“Global trade growth has come to a near standstill,” she added.

For the global economy, the cumulative effect of trade conflicts could mean a loss of around $700 billion by 2020, or about 0.8 percent of gross domestic product, she said, which is far higher than the fund previously forecast as its worst-case scenario.

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That is an amount “approximately the size of Switzerland’s entire economy,” Georgieva said, citing IMF research showing the secondary effects — such as the loss of confidence and financial market reactions — are far greater than the direct economic impact of the tariffs.

“The results are clear. Everyone loses in a trade war,” she added.

US President Donald Trump’s trade war with China involves steep tariffs on hundreds of billions of dollars in two-way commerce, but there are conflicts with other trading partners, as well.

And even if growth bounces back next year, some of the “rifts” already caused by the trade conflicts could cause “changes that last a generation,” such as shifting supply chains, she said.

To protect against a sharp global slowdown, Georgieva called on countries with funds available to deploy their “fiscal firepower.”

While some governments are burdened by high debt levels, “in places such as Germany, the Netherlands and South Korea, an increase in spending — especially in infrastructure and research and development — will help boost demand and growth potential,” she said.

Although many economies have been relying on central banks and low interest rates to support economic expansion, she warned that keeping rates low for too long can cause investors to engage in risky behavior.

The IMF estimates that if there were a major economic downturn, “corporate debt at risk of default would rise to $19 trillion, or nearly 40 percent of the total debt in eight major economies. This is above the levels seen during the financial crisis,” she said.

Credit belongs to : www.manilatimes.net

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