The Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva has issued a warning that the global economy would witness a synchronized slowdown in growth if they fail to resolve trade conflicts and work together.
The Details: The new IMF boss made this statement at her inaugural speech after she was appointed to replace the former IMF CEO, Christine Lagarde, who resigned to become head of the European Central Bank (ECB).
“There is a serious risk that services and consumption could soon be affected,” she said. She added that trade conflicts had weakened manufacturing and investment activities globally.
[READ MORE: IMF boss discloses immediate priority]
Georgieva noted that the cumulative effect of trade conflicts would result in a $700 billion reduction in global Gross Domestic Product (GDP) output by 2020, or around 0.8%. She hinted that new Fund research would be unveiled during IMF and World Bank annual meetings next week.
Trade Tariffs: The IMF boss’ predictions cast its lens on the United States President, Donald Trump, who planned tariff increases on remaining Chinese imports, or around $300 billion worth of goods. Georgieva warned that a huge chunk of the GDP losses would arise from a decline of business confidence, productivity losses from broken supply chains and negative market reactions.
“In 2019, we expect slower growth in nearly 90% of the world. The global economy is now in a synchronized slowdown. This means that growth this year will fall to its lowest rate since the beginning of the decade.”
She also said that this development would affect several countries suffering from trade conflicts, as well as struggling emerging markets.
Global financial crisis looms: The IMF boss added that if this trend continues, then the world would require a “synchronized policy response” along the lines of stimulus efforts enacted during the 2008-2009 financial crisis.
Georgieva urged central banks around the world to maintain low rates where appropriate but also warned that this could prompt excessive credit growth and risky investments in the search for better yields, leading to increased financial vulnerabilities.
“Our new analysis shows that if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40% of the total debt in eight major economies. This is above the levels seen during the financial crisis.”