Nick Beams
The semi-annual meeting of the International Monetary Fund (IMF), which begins in Washington today and runs to the end of the weekend, is being held amid warnings that the world economy has entered a major slowdown and could be on the way to outright recession.
The IMF’s World Economic Outlook (WEO) report, due to be published today, will include a downward revision on previous growth forecasts, as foreshadowed in a major speech by incoming managing director Kristalina Georgieva last week.
Georgieva began by pointing out that two years ago the global economy was experiencing a synchronised upswing with growth in nearly 75 percent of the world economy on the rise. Today the world economy is in a synchronised global downswing with lower growth expected in 90 percent of the world.
“The widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade,” she said, foreshadowing a downgrade by the IMF of its growth forecasts for both 2019 and 2020 in its WEO report.
Georgieva pointed to the increasing “fractures” in the world economy caused by the escalation of trade conflicts. In the past, she said, the IMF had warned of the dangers arising from trade disputes.
“Now, we see that they are actually taking their toll. Global trade growth has come to a near standstill.”
As a result, “world manufacturing and investment have weakened substantially” and there is a “serious risk that services and consumption could soon be affected.”
Georgieva warned that, because of the cumulative effect of trade conflicts, the fall in growth could be as high as $700 billion by 2020, or about 0.8 percent of the world economy, equivalent to the size of the Swiss economy.
“Disputes now extend between multiple countries and into other critical issues. Currencies are once again in the spotlight. Because of our interconnected economies, many more countries will soon feel the impact.”
The divisions go well beyond trade as the US campaign to block the international usage of the Chinese technology giant Huawei demonstrates.
The IMF chief warned that even if growth revived in 2020, “the current rifts could lead to changes that last a generation—broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.”
As has now become customary in IMF statements and speeches, Georgieva called on all countries to work together to produce a lasting solution on trade. But the prospects for such an agreement are rapidly receding.
The agreement reached between the US and China last week is not an end to the trade war but merely a highly unstable truce before conflict resumes over the central US demands that China scrap its subsidies to state-owned enterprises and take action to curb its technological development. These demands have been rejected by Beijing as being tantamount to the scrapping of its central economic policies.
Within days of the limited US-China deal being announced, there are even doubts that a final agreement will be signed off by presidents Trump and Xi in November.
The trade conflicts are not confined to the US and China. This week the US is set to impose tariffs against a range of European products in response to a finding by the World Trade Organisation that subsidies paid to the European aircraft manufacturer Airbus in contravention of WTO rules adversely impact its US rival Boeing.
The European Union has indicated it will respond when the WTO brings down an expected finding that Boeing was assisted by tax breaks, also in contravention of WTO rules.
The trade conflict between the US and the EU could intensify in November if Trump goes ahead with a threat to impose a 25 percent tariff on European auto exports on “national security” grounds. The threat is the sharp end of the drive by his administration to impose a trade deal in which European markets are opened to American agricultural exports—a demand which EU negotiators have insisted is off the table.
In a preview of the IMF meeting, a Bloomberg article painted a sombre picture of the world economy.
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