Trade tensions are hampering the health of the global economy, which is going to grow at its slowest pace in a decade, the new head of the International Monetary Fund (IMF), Kristalina Georgieva, warned on Tuesday.
Studies show that the impact of trade conflicts is causing widespread damage and that countries must be ready to respond with an increase in liquidity, Georgieva said in his first speech since he took the reins of the agency.
“In 2019, we expect slower growth in almost 90% of the world. The global economy is in a synchronized slowdown, ”Georgieva said in a speech before the annual IMF and World Bank meeting that starts next week.RELATED
The new IMF managing director said that this general slowdown implies that the world economy is growing at its lowest rate in a decade.
Georgieva warned that the IMF is going to cut its growth forecasts for this year and next year, which the entity had planned for an expansion of 3.2% for 2019 and 3.5% for 2020. The Fund plans to disseminate its forecasts updated on October 15.
At a time of abundant warnings about the risks of commercial tensions for the economy, the IMF chief said they already have an effect. "The growth of global trade is at a standstill," he warned. For the global economy, the cumulative effect of trade conflicts could mean a loss of $ 700 billion in 2020, equivalent to about 0.8% of GDP, he said, a more severe forecast than the Fund's first warnings.
This amount is roughly equivalent to the size of the entire Swiss economy, Georgieva said, referring to an IMF study on side effects, such as loss of confidence and market reactions, which are greater than the direct impacts of tariffs. “The result is clear. Everyone loses with the commercial war, ”he warned.
The commercial war launched by the president of the United States, Donald Trump, against China implies higher tariffs on hundreds of billions of dollars in bilateral exchanges, but there are also tensions with other partners. Even if growth resurfaces next year, some of the “fissures” that the trade conflict has already caused “could generate changes that last for a generation,” such as changes in supply chains, he explained.
To protect the economy from a global break, Georgieva urged countries that have the capacity to deploy a "fiscal firewall."
Although some governments are burdened by high levels of debt, the IMF chief asked countries such as Germany, the Netherlands and South Korea to increase spending, especially in infrastructure and research and development, to help feed demand and demand. potential growth
At a time when many countries delegate to central banks and low interest rates to underpin economic expansion, the agency's managing director warned that keeping rates low for too long can cause investors to adopt risky behaviors.
The IMF estimates that if there is a greater economic slowdown “corporate debt with risk of default will rise to $ 19 trillion, or about 40% of all total debt in eight of the major economies. This is above the levels seen during the financial crisis, ”he said.
Georgieva also referred to the climate change crisis and said that this will require a change in national tax systems that includes an increase in carbon emission levies.
"This is a crisis in which no one is immune and everyone has the responsibility to act," he said.
"The key is to change the tax systems, not simply add a new tax," he added. According to Georgieva, additional income from the carbon rate can be used to reduce taxes on the most vulnerable households. The new resources can also be used to "support investments in clean energy infrastructure that will help the planet heal."
(With information from AFP)