Slowing global growth a rising worry

New International Monetary Fund (IMF) Managing Director Kristalina Georgieva’s stark warning that trade conflicts have thrown global growth into a “synchronised slowdown” should wake up the world community from slumber and coordinated corrective measures should be initiated before things get out of hand.

In 2019, slower growth has been predicted in nearly 90 per cent of the world and lethargy cannot be an option.

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

The IMF 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 and negative market reactions, as Kristalina Georgieva points out.

She has indicated that the IMF is cutting its forecasts for growth this year and the next. Previously, the world economy had been projected to expand by 3.2 per cent in 2019 and 3.5 per cent in 2020. The fund is due to release details in its updated World Economic Outlook on Oct.15.

There are ample indications of trouble brewing on the ground. For example, US stocks fell more than 1% on Tuesday as sentiment soured ahead of high-level trade talks after a report the Trump administration was moving ahead with efforts to limit capital flows into China and the inclusion of more Chinese firms in a blacklist.

The declines were broad-based, with all the major S&P 500 sectors trading lower and 28 of the 30 components of the blue-chip Dow Jones index in negative territory.

European stocks sank and major bond yields nudged lower on Tuesday.

The Washington-Beijing trade war has ignited more uncertainty and worry all around. Beijing sharply rebuked Washington on Tuesday for adding some top Chinese artificial intelligence startups to its trade blacklist, dimming hopes for progress in high-level talks aimed at ending a 15-month trade war between the two economic giants.

A report in the “South China Morning Post” has hinted that China tamped down expectations ahead of the talks scheduled for Thursday with Chinese Vice Premier Liu He, US trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin, saying the Chinese delegation could leave earlier than planned because “there’s not too much optimism.”

The trade talks are taking place days before US tariffs on $250 billion worth of Chinese goods are slated to rise to 30% from 25%.

Trump has said the tariff increase will take effect on Oct.15 if no progress is made in the negotiations.

He has already declared that a quick trade deal is unlikely, and that he does not favour a partial deal.

The fact that global trade growth has come to a near standstill should be considered a major cause for concern. Economic turbulence can have a deep impact on social aspects too, leading to disturbance in daily lives of people.

A weaker global economy also puts essential investments in areas such as education, health and climate action at risk.

Developing countries will be the worst affected, particularly those whose economies rely heavily on markets likely to be affected by additional tariffs and retaliatory measures.

If a synchronised slowdown in world economies worsens, the world may need a synchronised policy response along the lines of stimulus efforts enacted during the 2008-2009 financial crisis, as Kristalina Georgieva suggests.