Nations ‘must unite now to counter global slowdown’

Nations must end protectionist trade conflicts and unify to stop the “synchronised slowdown” of the global economy, warned the new head of the International Monetary Fund (IMF), Kristalina Georgieva, during her inaugural speech on Tuesday.

Speaking in Washington, the Bulgarian economist, managing director of the IMF since 1 October, said: “In 2019, we expect slower growth in nearly 90% of the world. The global economy is now in a synchronised slowdown. This means that growth this year will fall to its lowest rate since the beginning of the decade.”

“We are decelerating, we are not stopping, and it’s not that bad. And yet, unless we act now, we are risking a potential more massive slowdown,” she said.

Subscribe to The Week

Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.

SUBSCRIBE & SAVE

Sign up for The Week's Free Newsletters

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.

Sign up

However, “while the need for international cooperation is going up, the will to engage is going down”, she warned, adding that the disintegration of established global structures could last a generation, leading to “broken supply chains, siloed trade sectors, a ‘digital Berlin Wall’ that forces countries to choose between technology systems.’”

–––––––––––––––––––––––––––––––For a round-up of the most important business stories and tips for the week’s best shares - try The Week magazine. Get your first six issues free–––––––––––––––––––––––––––––––

Georgieva also addressed the impact of the US’s trade war with China, which she said could cost the global economy around $700 billion by 2020 .

“In this scenario, the whole economy of Switzerland disappears,” she added, previewing new Fund research to be unveiled during IMF and World Bank annual meetings next week.

“The warning comes at a potential turning point in the trade conflict between the world’s two largest economies,” reports The New York Times. “American and Chinese negotiators are meeting in Washington this week to try to resolve a trade war that has begun to inflict economic pain in both countries.”

The IMF chief also spoke about the perils of Brexit. “It is very obvious that this [Brexit] is going to be painful,” she told the BBC, saying UK politicians will have to work out how to protect people from its worst side effects. “The choices are not that many - you either borrow or you look at the [tax] increase,” she said.

Georgieva advised central banks to keep interest rates low as a form of stimulus “where appropriate”, but also warned that chronically low interest rates could produce similar conditions which led to the 2008 crash.

The Telegraph says “financial vulnerabilities are building as pension funds and insurers take on riskier investments to boost their returns, and companies pile on cheap debt for acquisitions instead of investing”.

Georgieva said the increase in risk-taking meant that if a major downturn occurs, corporate debt at risk of default would rise to $19 trillion, or nearly 40 percent of the total debt in eight major economies. This is above the levels seen during the financial crisis”.