Synchronised slowdown rocks global economy
Trade wars, Brexit and political strife taking toll, says new IMF chief
THE global economy is suffering a ‘synchronised slowdown’ as trade disputes, Brexit and geopolitical tensions take their toll, the International Monetary Fund (IMF) has warned.
In her first speech as head of the global watchdog, the IMF’s new boss Kristalina Georgieva ( pictured) told world leaders that they must ‘fix the fractures in the global economy’.
She said the Fund will cut its growth forecasts for 2019 and 2020 in its World Economic Outlook next week.
In July, it forecast global growth of 3.2pc in 2019 and 3.5pc in 2020, down 0.1 percentage points from its April report as data pointed to sluggish activity.
The IMF, which acts to encourage monetary cooperation between countries, now expects to see slower growth in almost 90pc of the world in 2019.
At its headquarters in Washington yesterday, Georgieva said: ‘Two years ago the global economy was in a synchronised upswing. It is now in a synchronised slowdown. This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade.’
She added: ‘Uncertainty, driven by trade, but also by Brexit and geopolitical tensions, is holding back economic potential. Even if growth picks up in 2020, current rifts could lead to changes that last a generation: broken supply chains, siloed trade sectors, a “digital Berlin Wall” that forces countries to choose between technology systems. Our goal should be to fix these fractures.’
In a second warning, the World Economic Forum (WEF) said the world was unprepared for a major slowdown.
Ten years on from the financial crisis, the global economy is locked in a cycle of low or flat productivity growth, it said, as monetary policies such as lower interest rates and money printing ‘run out of steam’. It urged governments to use fiscal policies, such as boosting spending on infrastructure and education, to encourage economic activity.
Georgieva, a Bulgarian economist who succeeded Christine Lagarde as managing director of the IMF this month, also emphasised that fiscal policy ‘must play a central role’ in preventing a major downturn.
She recommended that policymakers focus on reducing corruption and digitising tax collection to pull in more domestic revenue, while countries should ensure their workforces are prepared for increasing automation.
‘Hard work starts at home,’ she said. ‘I learned this lesson firsthand growing up behind the Iron Curtain. I saw the high costs of bad policies. And I also saw how a shift to good policies, with international support, can help put a country and its people back on the path to prosperity.’
Blaming rifts such as the USChina trade war for bringing global trade growth to a near-standstill, Georgieva warned against increased protectionism. She said: ‘Everyone loses in a trade war. For the global economy, the cumulative effect of trade conflicts could mean a loss of around $700bn by 2020.’ At £565bn, this is approximately the size of Switzerland’s entire economy.
Politicians must work together to find a lasting solution on trade, she added. Her warning comes as trade tensions between the US and China escalate. US President Trump has slapped 25pc tariffs on $ 250bn of imported Chinese goods, and is set to ramp up the tax to 30pc on October 15.
And the US has now accused Chinese technology companies of human rights abuses, banning them from buying US goods.
In its report, the WEF found that the US had lost its crown as the world’s most competitive economy in 2019 to Singapore. The UK fell one place, to ninth out of 141.