Wednesday, 16 October, 2019

IMF warning: 'Serious risk' global slowdown will spread

Washington which as the largest shareholder in the global lender wields an effective right of veto has previously expressed opposition to increasing the IMF's overall funding and shareholder quotas- a move that would also reshuffle voting rights [File The IMF's new chief unveils data showing trade conflicts could wipe out $700 billion in global GDP by 2020
Deanna Wagner | 09 October, 2019, 14:36

The World Bank report follows a blunt warning from the International Monetary Fund's new managing director, Kristalina Georgieva, that trade conflicts were causing a "synchronized slowdown" in the global economy that could substantially worsen unless these were resolved.

For the global economy, the cumulative effect of trade conflicts could mean a loss of around Dollars 700 billion by 2020, or about 0.8 per cent of GDP, she said, which is far higher than the fund previously forecast as its worst case scenario.

The IMF Managing Director said that global trade growth has come to a "near standstill".

In her speech, ahead of the IMF-World Bank autumn meetings next week, Georgieva said slower growth is expected this year in almost 90% of world economies.

"Two years ago, the global economy was in a synchronized upswing".

Georgieva said widespread deceleration means that growth in 2019-20 will fall to its "lowest rate" since beginning of decade.

U.S. President Donald Trump has taken a hard line on trade issues and has become involved in several tit-for-tat tariff moves - the most substantial of which is with China.

She said trade tensions could result in "substantial weakening" of manufacturing and investment activity, and could subsequently affect services and consumption.

"There is also in my view a risk of complacency", she said in an on-stage conversation with Bloomberg's Tom Keene in Washington following her speech. Measured by GDP, almost 75 per cent of the world was accelerating.

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Georgieva, former chief executive officer of the World Bank, took over on October 1 as International Monetary Fund managing director, succeeding Christine Lagarde, who left to lead the European Central Bank.

"The right reforms in the right sequence could double the speed at which emerging markets and developing economies reach the living standards of the advanced economies", Georgieva said.

"Our new analysis shows that if a major downturn occurs, corporate debt at risk of default would rise to US$19 trillion, or almost 40% of the total debt in eight major economies", she said.

A deeper slowdown would require more fiscal support, Georgieva said.

"In some of the largest emerging market economies, such as India and Brazil, the slowdown is even more pronounced this year", she added.

She additionally mentioned that about 40 rising markets and growing economies, together with 19 in sub-Saharan Africa, may have actual GDP progress charges above 5 per cent.

The Bulgarian-born official added a personal note to her speech: "When it comes to improving people's lives, hard work starts at home".

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.