Published: Wed, October 09, 2019

Effects of global slowdown more pronounced in India

Effects of global slowdown more pronounced in India

The cumulative effect of trade conflicts could mean a US$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.

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.

Global trade growth has come to a "near standstill", she claimed.

Fund expects slower growth in almost 90% of world in 2019. So, he said, "the world economy is now in a period of synchronized slowdown".

Beyond the immediate costs, she said, the "rifts" could cause disruptions that "last a generation".

She warned, however, that very low or even negative interest rates can come with "negative side effects and unintended consequences" that can lead to financial vulnerabilities.

"In part because of the trade tensions, worldwide manufacturing activity and investment have weakened substantially", she said, noting that services and consumption could soon be at risk because "the fractures are spreading".

Countries need to address legitimate concerns such as unfair trade subsidies and inadequate protection of intellectual property rights and technology transfers, she said.

The new International Monetary Fund head said that trade disputes have now affecting multiple countries, as are other critical situations like Brexit.

Georgieva gave her inaugural speech on Tuesday after assuming the role of managing director on October 1 following Christine Lagarde's departure early this year to run the European Central Bank.

If a synchronised slowdown in world economies worsens, she said, the world may need a "synchronised policy response" along the lines of stimulus efforts enacted during the 2008-2009 financial crisis.

In a new report, the World Bank said global value chains - which spread production processes of goods over multiple countries - grew swiftly from 1990 to 2007 as reduced trade barriers and improved information technology and transportation links induced manufacturers, making up half of all trade.

The precarious outlook will affect many countries caught in the crossfire of trade conflicts, including struggling emerging markets with International Monetary Fund programmes, she added. The world economy now looks even weaker than the bank's June forecast for 2.6% growth in 2019, as it is "hurt by Brexit, Europe's recession and trade uncertainty".

To protect against a sharp global slowdown, Georgieva called on countries with funds available to deploy their "fiscal firepower". "We must act", she said.

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.

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