IMF chief warns of ‘slowdown’ in growth

Trade war could cut $700bn in global GDP output by 2020

WASHINGTON, Oct 8, (RTRS): The global economy is experiencing a “synchronized slowdown,” the new head of the International Monetary Fund said on Tuesday, warning that it would worsen if governments failed to resolve trade conflicts and support growth.

In a blunt inaugural speech since taking the helm of the global crisis lender on Oct 1, IMF Managing Director Kristalina Georgieva said trade tensions had “substantially weakened” manufacturing and investment activity worldwide.

“There is a serious risk that services and consumption could soon be affected,” she said.

The cumulative effect of trade conflicts could mean a $700 billion reduction in global gross domestic product (GDP) output by 2020, or around 0.8%, she said, previewing new Fund research to be unveiled during IMF and World Bank annual meetings next week.

“In this scenario, the whole economy of Switzerland disappears,” Georgieva added.

The research takes into account US President Donald Trump’s announced and planned tariff increases on remaining Chinese imports, or around $300 billion worth of goods. Much of the GDP losses will come from a decline of business confidence, productivity losses from broken supply chains and negative market reactions, she said.

“In 2019, we expect slower growth in nearly 90 percent of the world. The global economy is now in a synchronized slowdown. This means that growth this year will fall to its lowest rate since the beginning of the decade,” Georgieva said.

The situation is a stark contrast from two years ago, before the US-China trade war got started, when countries representing nearly 75% of the world’s output were seeing accelerating growth, she said.

The Bulgarian economist, a former European Union official who previously held the No 2 job at the World Bank Group, said trade growth had “come to a near standstill.”

She warned that fractures in trade could lead to changes that last a generation,

including “broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.’”

The precarious outlook will affect many countries caught in the crossfire of trade conflicts, including struggling emerging markets with IMF programs, she added.

In calling for countries to work together to revise global trade rules to make them sustainable, she referenced frequent complaints about China’s trade practices, without specifically naming the country.

“That means dealing with subsidies, as well as intellectual property rights and technology transfers,” she said, adding that a modernized trading system would unlock the potential of services and e-commerce.

Georgieva said one of the biggest risks was for governments to become complacent about trade conflicts and take no action to resolve them or support growth.

“We are decelerating, we are not stopping, and it’s not that bad. And yet, unless we act now, we are risking a potential more massive slowdown,” Georgieva said.