US-China trade war may cost US$700 billion by 2020 in synchronised global slowdown, new IMF chief says
- Global growth rate this year is expected to slow to lowest rate in a decade, new IMF head Kristalina Georgieva says
- Global corporate debt at risk of default in event of global downturn would be higher than during global financial crisis, the economist warns
The trade war between China and the United States could cost an increasingly fractured global economy about US$700 billion, or 0.8 per cent of gross domestic product, by 2020, Kristalina Georgieva said in her maiden speech as International Monetary Fund chief on Tuesday.
“We have spoken in the past about the dangers of trade disputes. Now, we see that they are actually taking a toll,” the Bulgarian economist said, according to a text of her opening address to the annual International Monetary Fund (IMF)/World Bank meetings in Washington.
In updated economic forecasts scheduled for release next week, the IMF, an organisation of 189 countries working to increase global monetary cooperation, is expected to downgrade the global growth outlook for the fifth time since October 2018. In July, it projected that the world economy would grow 3.2 per cent this year and 3.5 per cent in 2020.
New IMF analysis also suggests that if a major global downturn were to occur, corporate debt at risk of default would rise to US$19 trillion, or nearly 40 per cent of the total debt in eight major economies – and above the level seen during the global financial crisis a decade ago, Georgieva said.
Her comments come as global central banks have embarked on a new round of interest rate cuts and easing of monetary policy measures this year. However, Georgieva warned of the limits of monetary policy amid financial vulnerabilities, urging countries to boost fiscal policy instead.
“Low interest rates may give some policymakers additional money to spend,” she said. “That advice will not work everywhere. Globally, public debt is near record levels. Now is the time for countries with room in their budgets to deploy – or get ready to deploy – fiscal firepower.”
The global economy is facing growing fractures and rifts that could lead to changes that last a generation, including broken supply chains and a “digital Berlin Wall” that forces countries to choose between technology systems, she said.
The global economy is now in a synchronised slowdown … This widespread deceleration means that growth this year will fall to its lowest rate since the beginning of the decade