New York: The International Monetary Fund expects a more significant global slowdown than it did three months ago, said First Deputy Managing Director David Lipton, adding it’s difficult to see an economic recovery if the trade uncertainty continues.
“We see the global economy going through a gradual, synchronised slowdown,” Lipton said on Tuesday in Berlin, speaking alongside German Chancellor Angela Merkel and the heads of other international economic organisations. “Unless the trade tensions are defused, it’s very hard to see mainstream macroeconomic tools countering the impact of escalating trade difficulties, so it’s very important that those be de-escalated.”
The IMF cited trade uncertainty for cutting its outlook for 2019 global growth to 3.2 per cent in July, the fourth downgrade since last October. “The data that’s come out since then leads us to expect some further slowdown,” said Lipton, who led the fund on an acting basis after Christine Lagarde stepped aside in July. Kristalina Georgieva took over as IMF managing director on Tuesday.
The fund is preparing to release its next projections for the world economy this month at the annual IMF meetings in Washington.
Looser monetary policy by central banks has helped deliver an economic boost, Lipton said, noting that more fiscal stimulus may also be needed. The Federal Reserve lowered interest rates by a quarter percentage point in July and again in September as the economy cooled, while the European Central Bank cut rates further below zero and restarted quantitative easing last month.
“It’s been important that central banks have stood ready to continue providing support. We believe that’s been a material factor in stemming the slowdown in the global economy,” Lipton said. “It’s important that fiscal policy stand ready if there’s further slowdown to react where countries have policy space.”
Still, policymakers in major economies must be vigilant to the dangers from an extended period of low interest rates, Lipton said.
“Rates have been low for a long time in major parts of the advanced world. They are likely to stay low,” he said. “There’s the risk that, over time, financial stability vulnerabilities arise. We don’t think that’s an imminent problem. But we think it’s important for policymakers to be looking at these risks, monitoring them, and trying to make sure that we don’t have a repeat of financial instability, as we saw how damaging that could be during the global financial crisis.”