WASHINGTON, Oct 20
With the global economy in a synchronised slowdown amid growth forecast for 2019 to 3 per cent, its slowest pace since the 2008 global financial crisis, the International Monetary Fund (IMF) has urged policymakers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions and reduce domestic policy uncertainty.
Such actions can help boost confidence and reinvigorate investment, manufacturing and trade. To fend off other risks to growth and to raise potential output, economic policy should support activity in a more balanced manner, said Gita Gopinath, Economic Counsellor and Director of the Research Department at IMF.
“Monetary policy cannot be the only game in town. It should be coupled with fiscal support where fiscal space is available, and policy is not already too expansionary,” she wrote in a blogpost during the annual meetings of World Bank Group and IMF being held here from October 15 to 20.
Countries like Germany and the Netherlands should take advantage of low borrowing rates to invest in social and infrastructure capital, even from a pure cost-benefit perspective. If growth were to deteriorate more severely, an internationally coordinated fiscal response tailored to country circumstances may be required.
While monetary easing has supported growth, it is essential that effective macro-prudential regulation be deployed to prevent mispricing of risk and excessive build-up of financial vulnerabilities, said Gopinath.
For sustainable growth, it is important that countries undertake structural reforms to boost productivity, improve resilience and lower inequality. Reforms in emerging market and developing economies are also more effective when good governance is already in place.
“The global outlook remains precarious with a synchronised slowdown and uncertain recovery. At 3 per cent growth, there is no room for policy mistakes and an urgent need for policymakers to support growth,” she said.
The global trading system needs to be improved, not abandoned. “Countries need to work together because multilateralism remains the only solution to tackling major issues like risks from climate change, cybersecurity risks, tax avoidance and tax evasion, and the opportunities and challenges of emerging financial technologies.”
Gopinath said the weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods.
In addition, the automobile industry is contracting owing also to a variety of factors like disruptions from new emission standards in the euro area and China that have had durable effects. Overall, trade volume growth in the first half of 2019 has fallen to 1 per cent, the weakest level since 2012.
However, the IMF’s World Economic Outlook projects a modest improvement in global growth to 3.4 per cent in 2020. The uptick is driven by emerging market and developing economies that are projected to experience a growth rebound to 4.6 per cent.
