IMF: ‘Serious risk’ global slowdown will spread
Kristalina Georgieva, in her first major address as International Monetary Fund head, painted a downbeat picture of the world economy, saying a harsher slowdown could require nations to co-ordinate fiscal-stimulus measures.
Setting the tone for next week’s annual meeting of the IMF, Georgieva said the fund will cut its growth forecast for both 2019 and 2020 in its next World Economic Outlook due October 15. In July, the fund lowered its projection to 3.2 per cent this year and 3.5 per cent next year — its fourth downgrade since last October.
Global institutions, economists and investors are blaming the US-China tariff conflict as a prime factor for slowing global growth. The trade tensions have partly caused manufacturing to tumble and weakened investment, creating a “serious risk” of spillover to other areas like services and consumption, Georgieva said.
Global trade growth is close to a standstill, she added.
“The global economy is now in a synchronised slowdown,” she said, noting the fund estimates 90 per cent of the world is seeing slower growth. Two years ago, growth was accelerating across three-quarters of the globe in a synchronised upswing, she added.
“Uncertainty — driven by trade but also by Brexit, and geopolitical tensions — is holding back economic potential.”
Not only that, but the economic rifts could “last a generation” with possible shifts such as broken supply changes and siloed trade.
The OECD trimmed its forecast last month, while World Bank president David Malpass said on Tuesday that the lender is preparing to downgrade its assessment from its 2.6 per cent estimate in June.
A deeper slowdown would require more fiscal support and possibly a co-ordinated response, Georgieva said.
On monetary policy, she said central banks should keep interest rates low where appropriate. But she warned very low or even negative rates can come with “negative side effects”.