Synchronised slowdown rocks global economy: Trade wars, Brexit and political strife taking toll, says new IMF chief
Slowdown warning: The IMF’s new boss Kristalina Georgieva
The global economy is suffering a ‘synchronised slowdown’ as trade disputes, Brexit and geopolitical tensions take their toll, the International Monetary Fund (IMF) has warned.
In her first speech as head of the global watchdog, the IMF’s new boss Kristalina Georgieva told world leaders that they must ‘fix the fractures in the global economy’. She said the Fund will cut its growth forecasts for 2019 and 2020 in its World Economic Outlook next week.
In July, it forecast global growth of 3.2 per cent in 2019 and 3.5 per cent in 2020, down 0.1 percentage points from its April report as data pointed to sluggish activity. The IMF, which acts to encourage monetary cooperation between countries, now expects to see slower growth in almost 90 per cent of the world in 2019.
At its headquarters in Washington yesterday, Georgieva said: ‘Two years ago the global economy was in a synchronised upswing.
‘It is now in a synchronised slowdown. This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade.’
She added: ‘Uncertainty, driven by trade, but also by Brexit and geopolitical tensions, is holding back economic potential.
‘Even if growth picks up in 2020, 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. Our goal should be to fix these fractures.’
In a second warning, the World Economic Forum (WEF) said the world was unprepared for a major slowdown.
UK productivity crisis deepens
The productivity of British workers has fallen at its fastest rate in five years, according to official figures.
Output per hour between April and June was 0.5 per cent lower than it was in the same period last year.
That was the biggest fall since the second quarter of 2014 with analysts warning that Brexit uncertainty has dented investment and productivity.
The Office for National Statistics figures came as the pound fell against the dollar and the euro.
Economists believe higher productivity boosts economic growth and improves standards of living.
The data will be grim reading for Prime Minister Boris Johnson, who said he would ‘drive up the productivity of this country’. Britain has seen no growth in productivity since the second quarter of 2018.
Ten years on from the financial crisis, the global economy is locked in a cycle of low or flat productivity growth, it said, as monetary policies such as lower interest rates and money printing ‘run out of steam’.
It urged governments to use fiscal policies, such as boosting spending on infrastructure and education, to encourage economic activity.
Georgieva, a Bulgarian economist who succeeded Christine Lagarde as managing director of the IMF this month, also emphasised that fiscal policy ‘must play a central role’ in preventing a major downturn.
She recommended that policymakers focus on reducing corruption and digitising tax collection to pull in more domestic revenue, while countries should ensure their workforces are prepared for increasing automation.
IMF’s £410k new boss
Kristalina Georgieva took over as IMF managing director this month.
The 66-year-old only opened a bank account in 1987 when, at 34, she moved to the UK from her native Bulgaria.
She studied at the London School of Economics, then worked at the World Bank and the European Commission.
She is paid £410,000.
‘Hard work starts at home,’ she said. ‘I learned this lesson first-hand growing up behind the Iron Curtain.
I saw the high costs of bad policies. And I also saw how a shift to good policies, with international support, can help put a country and its people back on the path to prosperity.’
Blaming rifts such as the US-China trade war for bringing global trade growth to a near-standstill, Georgieva warned against increased protectionism.
She said: ‘Everyone loses in a trade war. For the global economy, the cumulative effect of trade conflicts could mean a loss of around $700billion by 2020.’
At £565billion, this is approximately the size of Switzerland’s entire economy.
Politicians must work together to find a lasting solution on trade, she added. Her warning comes as trade tensions between the US and China escalate.
US President Trump has slapped 25 per cent tariffs on $250billion of imported Chinese goods, and is set to ramp up the tax to 30 per cent on October 15.
And the US has now accused Chinese technology companies of human rights abuses, banning them from buying US goods.
In its report, the WEF found that the US had lost its crown as the world’s most competitive economy in 2019 to Singapore. The UK fell one place, to ninth out of 141.