Indian slowdown more 'pronounced' in world economy: new IMF chief

Washington: The new managing director of the International Monetary Fund (IMF) Kristalina Georgieva painted a grim picture of the world economy during her first speech at the helm of the multilateral organization while citing grinding trade disputes as the main reason for the slow growth.

Slowest growth in a decade

"In 2019, we expect slower growth in nearly 90 per cent of the world. The global economy is now in a synchronized slowdown," Georgieva said at the IMF headquarters here on Tuesday.

"This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade," the Bulgarian economist, who takes over from Christine Lagarde who will become the president of the European Central Bank, explained.

In her analysis, Georgieva argued that economic activity is softening in advanced economies, such as the US, Japan and, especially, the eurozone, while in other emerging markets, such as India and Brazil, the slowdown is even more pronounced this year.

China's accelerated growth is experiencing a gradual decrease, she added.

Georgieva made this assessment one week ahead of the joint Annual Meeting between the IMF and World Bank (WB) in which both institutions will present their economic projections in a gathering of top central bankers and economy ministers.

The IMF chief warned that the World Economic Outlook for 2019 and 2020 reflects a complex situation compared to the previous figures presented in July in Chile.

"The precarious outlook presents challenges for countries already facing difficulties - including some of the Fund's program countries."

However, she said that about 40 emerging markets and developing economies, including 19 in sub-Saharan Africa, will have real GDP growth rates above 5 per cent.

Trade disputes

Georgieva blamed trade disputes, such as the commercial war between Washington and Beijing, for global economic sluggishness, in addition to geopolitical tensions, such as Brexit, that have sparked uncertainty.

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

"Even if growth picks-up 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," the IMF head added.

The economist said the main goal should now be to fix the fractures that have emerged and called for a coordinated global response.

"I believe we can do it. How? Start by unleashing the growth generating capacity of trade," she said.

"We need to work together, now, and find a lasting solution on trade," Georgieva added.

Research shows the impact of the trade conflict is widespread and countries must be ready to respond in unison with cash infusions, Georgieva said.

She also called for a ramp-up in carbon taxes to address the other challenge facing the global economy: climate change.

For the global economy, the cumulative effect of trade conflicts could mean a loss of around USD 700 billion by 2020, or about 0.8 per cent of GDP, she said, which is far higher than the fund previously forecast as its worst case scenario.

That is an amount "approximately the size of Switzerland's entire economy," Georgieva said, citing IMF research showing the secondary effects -- such as the loss of confidence and financial market reactions -- are far greater than the direct economic impact of the tariffs.

"The results are clear. Everyone loses in a trade war." 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. And even if growth resurges next year, some of the "rifts" already caused by the trade conflicts could cause "changes that last a generation," such as shifting supply chains, she said.

To protect against a sharp global slowdown, Georgieva called on countries with funds available to deploy their "fiscal firepower." While some governments are burdened by high debt levels, "in places such as Germany, the Netherlands, and South Korea, an increase in spending -- especially in infrastructure and R&D -- will help boost demand and growth potential," she said.

The fund is due to release details in its updated World Economic Outlook on October 15.

(With inputs from IANS and AFP via PTI.)