Newly appointed leaders of the the International Monetary Fund and the World Bank expressed concerns of joint slowdown of the world economy impacted by the U.S.-China trade conflicts. IMF Managing Director Kristalina Georgieva said in her first speech since her appointment that the global economy is in a synchronized slowdown that may require a “synchronized policy response.”
Foreign press including The Wall Street Journal reported Georgieva's quotes that the growth rate of the world economy may fall to the lowest levels in a decade, the IMF forecasted slower growth in 90% of the world. The cumulative effect of trade conflicts is expected to reach a 700-billion-dollar reduction, around 0.8% of global gross domestic product (GDP) output, equivalent to the economy of Switzerland, by 2020.
David Malpass, a former U.S. Treasury official who became the World Bank's president in April,, also predicted slow growth ahead in a speech at McGill University in Canada. "We now expect growth to be even weaker than that, hurt by Brexit, Europe’s recession and trade uncertainty," he said. The World Bank predicted in June that global growth would remain at only 2.6% this year, the lowest for the past three years.
Such forecasts come at a critical time one week ahead of the World Bank and IMF's annual meetings. "Interest rates are already very low or even negative in many advanced economies. Now is the time for countries with room in their budgets to deploy," IMF chief Georgieva said, citing Korea, Germany and the Netherlands. An increase in spending, particularly in infrastructure and R&D, will help boost demand and growth potential. Malpass said in an interview with The Wall Street Journal that more growth friendly government spending and tax systems in advanced economies will help prevent the economy from going worse.
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