The International Monetary Fund (IMF) has warned that the pervading trade tensions and the recent and threatened tariff increases would cut the global GDP by about three-quarters of a percent by 2020.
Christine Lagarde, IMF Managing Director giving the warning at the Group of 20 (G-20) Summit that has just ended in Buenos Aires, Argentina however said that the global GDP could go up by one-half if trade restrictions in services were reduced by 15 percent.
In a statement by Raphael Anspach of the Fund’s Communication department, Lagarde also cautioned against the $182 trillion global debt which she described as excessive.
Rising nationalist sentiment in many countries has created trade tension and roiled the markets and which the IMF chief said is pressures are rising on emerging markets while trade tensions are having negative impact.
The trade dispute has pervaded between the United States and China, the world’s two largest economies, which have imposed tariffs on hundreds of billions of dollars worth of each other’s imports after Trump launched an effort to correct what he views as China’s unfair commercial practices.
“The choice is especially stark regarding trade. We estimate that, if recently raised and threatened tariffs were to remain in place and announced tariffs were implemented, about three-quarters of a percent of global GDP could be lost by 2020. If, instead, trade restrictions in services were reduced by 15 percent, global GDP could be higher by one-half of a percent. The choice is clear: there is an urgent need to de-escalate trade tensions, reverse recent tariff increases, and modernize the rules-based multilateral trade system”.
On the excessive level of global debt, She advised highly indebted emerging-market and low-income countries, to rebuild buffers and reverse procyclical fiscal policies.
“Increasing debt transparency, such as on the volumes and terms of loans, by borrowers as well as lenders, is as important as supporting debt sustainability”.
To tackle the global economic challenges, the IMF boss recommended that the G-20 should fix trade so that they can boost growth and jobs.
“Second, continue to normalize monetary policy in a well-communicated, gradual, data-driven manner—and with due regard to potential spillover effects.
“Third, address financial risks, using micro- and macro-prudential tools to tackle problems related to leveraged lending, deteriorating credit quality, and high exposure to foreign currency or foreign-owned debt.
“Fourth, use exchange rate flexibility to mitigate external pressures, avoiding tariffs and other policies that could weaken market confidence.
“Finally, eliminate legal obstacles to the participation of women in the economy. This is key to tackling high and persistent inequality, and would add to the growth potential of all G-20 countries.
Lagarde who was encouraged by the G-20’s continued commitment to strengthen the global financial safety net, with a strong and adequately financed IMF at its center stressed the importance of the conclusion of the 15th General Review of Quotas by the G-20 Leaders by the Spring Meetings, and not later than the Annual Meetings in 2019.
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