Slow global growth calls for fast remedy

The International Monetary Fund (IMF) has indicated that global trade expanded by merely 0.5% in the first quarter of 2019, marking the slowest year-on-year pace of growth since 2012.

This certainly comes as disturbing news as there are also signals that a more significant slowdown is possible.

With the IMF lowering its forecast for global growth this year and the next, the world community should take a more serious note of the issue and address prevailing concerns caused by factors such as additional US-China tariffs, technology tensions and a disorderly Brexit.

These could compound problems by further slowing growth, weakening investment and disrupting supply chains.

IMF Chief Economist Gita Gopinath has indicated that she does not see signs of a recession, but does see significant downside risks for global growth going forward, including escalating trade wars.

The negative consequences of policy uncertainty are visible in the diverging trends between the manufacturing and services sector, and the significant weakness in global trade.

Manufacturing purchasing manager indices continue to decline alongside worsening business sentiment as businesses hold off on investment in the face of high uncertainty.

Euro zone business growth was weaker than expected in July, hampered by a deepening contraction in manufacturing.

A recession in Germany’s manufacturing sector worsened in July while French business growth also slowed unexpectedly in the month.

Amid the worrisome trend, the positive development is that the US and Chinese negotiators are expected to restart trade negotiations in Shanghai on July 30, aimed at improving the trade relationship between the world’s two largest economies,

US Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer will lead the American team, while Chinese Vice Premier Liu He will lead negotiations for China, as per a White House statement.

The discussions are likely to cover a range of issues, including intellectual property, forced technology transfer, non-tariff barriers, agriculture, services, the trade deficit, and enforcement.

Protectionist and unilateral approaches on trade are not the best way forward and only tend to fuel fear among investors.

In a highly connected world, moving further away from an open, fair and rules-based trade system cannot be termed sensible.

Economic issues can have a direct impact on lives of people across the globe and could even lead to social and health problems in the form of joblessness and depression.

It is hence necessary that the international community take remedial measures swiftly before things get out of hand. 

The global economy clearly remains at a delicate juncture and it would be pertinent to adopt policies to support growth, as suggested by IMF officials.

Monetary policy should remain accommodative especially where inflation is softening below target. But it needs to be accompanied by sound trade policies that would lift the outlook and reduce downside risks. With persistently low interest rates, macroprudential tools should be deployed to ensure that financial risks do not build up.

Fiscal policy should balance growth, equity, and sustainability concerns, including protecting society’s most vulnerable.

The need for greater global cooperation is urgent. In addition to resolving trade and technology tensions, countries should work together to address issues such as climate change, international taxation, corruption, cybersecurity and the challenges of emerging digital payment technologies.

Primarily, tariffs should not be used to target bilateral trade balances or as a general-purpose tool to tackle international disagreements.

Instead, the rules-based multilateral trading system should be strengthened to encompass areas such as digital services, subsidies and technology transfer.