Global economy in 'synchronised slowdown' says new IMF chief; effects more pronounced in India, Brazil

Around 90% of the world would be faced with an economic slowdown, said International Monetary Fund's (IMF) new managing director Kristalina Georgieva

FP Staff October 09, 2019 12:08:17 IST
Global economy in 'synchronised slowdown' says new IMF chief; effects more pronounced in India, Brazil
  • Around 90% of the world would be faced with an economic slowdown, said International Monetary Fund's (IMF) new managing director Kristalina Georgieva

  • Research shows the impact of the trade conflict is widespread and countries must be ready to respond in unison with cash infusions, Georgieva said

  • 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.

Around 90 percent of the world would be faced with an economic slowdown, said International Monetary Fund's (IMF) new managing director Kristalina Georgieva on Tuesday.

"In 2019, we expect slower growth in nearly 90 percent of the world," she said.

In her first speech after taking charge, Georgieva said the global economy is in the midst of a “synchronized slowdown”, effects of which have particularly been felt in countries such as India.

Global economy in synchronised slowdown says new IMF chief effects more pronounced in India Brazil

World Bank CEO Kristalina Georgieva. Reuters

She made this assessment one week ahead of the joint Annual Meeting between the IMF and World Bank (WB) in which both institutions will present their economic projections in a gathering of top central bankers and economy ministers, reports said.

"This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade."

She said the IMF is 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, according to an AFP report

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

The 66-year-old economist succeeded Christine Lagarde, and has been appointed for a five-year term, starting 1 October.

Trade disputes undermining global economy Grinding trade disputes are undermining the global economy, which is set to see its slowest growth in nearly a decade, the new IMF chief 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, Georgieva said, AFP reported.

She also called for a ramp-up in carbon taxes to address the other challenge facing the global economy which is climate change.

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

"Global trade growth has come to a near standstill."

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 GDP, she said, which is far higher than the fund previously forecast as its worst-case scenario. 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."

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 resurges 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, AFP 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 R&D—will help boost demand and growth potential," she said.

--With AFP inputs

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