The International Monetary Fund has warned that policy blunders of the central banks of the world have pushed the global economy to its weakest point since the global financial crisis of 2008 and the central banks are now wasting scarce ammunition to compensate for the faulty policies.
The IMF brought down its forecast for global economic growth for both 2019 and 2020 in its half-yearly World Economic Outlook (WEO) and added that the damage caused by protectionism would be mitigated by the stimulus provided by central banks.
Last year, the Washington-based IMF had predicted global growth for 20919 to be 3.6 per cent while it had brought it f=down to 3 per cent in its forecast in April this year. It has further downgraded the forecast for 2019 to 3 per cent.
And even through the global financial body forecast a pickup in growth in 2020 to 3.4 per cent, it is still lower than the previous estimate of global growth of 3.6 per cent that was made was just six months ago. The IMF said that the better performance of the global economy in 2020 would be dependent on better performance of a number of emerging countries such as Argentina and Turkey which are currently under pressure.
The IMF would have further cut the predictions for global growth by another 0.5 per cent but for the cuts interest rates that have been announced by central banks in both developed and developing countries in recent months, said Gita Gopinath, the IMF’s economic counselor.
The trade war between the United States and China has taken a more serious turn since its start in March of 2018 and the growth boost from the stimulus “helped offset the negative impact” of the trade war, she added.
By the end of next year, there would be a cumulative drop of 0.8 percentage points in global growth because of the tit-for-tat tariff action, Gopinath said.
There would be a long term solution to the US-China trade war, hoped Gopinath, while referring back to the recent trade truce announced by Washington and Beijing. The growth drop for the 2019 was reduce form 0.8 per cent to 0.6 per cent if the US tariffs set to come into force this month and another in the month of December were not imposed, she added.
“With central banks having to spend limited ammunition to offset policy mistakes, they may have little left when the economy is in a tougher spot,” Gopinath said in the WEO’s foreword.
Gopinath said subdued growth was a consequence of “rising trade barriers; elevated uncertainty surrounding trade and geopolitics; idiosyncratic factors causing macroeconomic strain in several emerging market economies; and structural factors, such as low productivity growth and ageing demographics in advanced economies.”
“It is important to keep in mind that the subdued world growth of 3% is occurring at a time when monetary policy has significantly eased almost simultaneously across advanced and emerging markets. The absence of inflationary pressures has led major central banks to move pre-emptively to reduce downside risks to growth and to prevent de-anchoring of inflation expectations, in turn supporting buoyant financial conditions.”
(Adapted from TheGuardian.com)