As the Finance Ministers and policymakers from Group 20 Industrialized countries have noted that the risk that global economic growth may slow more than expected so a call has been issued to the governments to overcome trade differences and opt for multilateral cooperation and timely policy action. At one side, policymakers from the G2 over that the weakness evident in key economies would spread, especially if elevated trade tensions, such as those between the United States and China, escalate further. The balance of risks remains skewed to the downside,
On the other hand, the International Monetary Fund (IMF) has cut its outlook for global growth amid slowing economic activity in the second half of last year and a gloomier outlook in major economies. In its third downgrade since October, IMF said yesterday that the global economy is likely to grow 3.3 per cent this year, the slowest pace since the financial crisis in 2009.
IMF’s forecast cuts 0.2 percentage point from its outlook in January, and although Singapore’s growth trajectory will reflect a slowdown, OCBC Bank’s head of treasury research and strategy Selena Ling said deterioration in the global growth environment has been fairly well-telegraphed for the last few months. Analysts believe the downgrade is unlikely to impact Singapore’s growth forecasts.
The said consensus numbers here have already been adjusted downwards, with the Monetary Authority of Singapore’s (MAS) survey last month of professional forecasters finding an expected gross domestic product (GDP) growth of 2.5 percent for this year, down from 2.6 per cent in December. The economy grew 3.2 per cent last year. MAS will likely stand pat on its monetary policy stance at a review tomorrow, after two rounds of tightening.
IMF’s semi-annual World Economic Outlook yesterday pointed to trade tensions between the United States and China, as well as a potentially disorderly British exit from the European Union as key risks, warning that chances of further cuts to the outlook were high. Major economies such as China and Germany may need to take short-term actions too.
IMF chief economist Gita Gopinath said governments may need to synchronise stimulus across economies if the slowdown becomes more serious. Its projected growth rate for next year, however, remains at 3.6 per cent if risks do not materialise. The economist also identified US-China trade talks as a risk factor for Singapore, on top of a global tech slowdown, saying Singapore’s economy is very much dependent on how the global economy performs.
Economist said the range of outcomes in the second half of the year is wide, although he added there is a low probability of recession. For now, economists are gearing up for what some call a disappointing advance GDP estimate for the first quarter, at below 2 per cent. Manufacturing growth has stagnated in the first two months and a lot of trade-related services and sectors have been hit. But exports and trade figures, as well as global semiconductor sales numbers, show emerging signs of a bottoming out in the economic cycle.
Noting that the trade war, which was at its worst in the fourth quarter last year, brought out risk-averse behaviour, inventories to be restocked. Taking into account stimulus measures from China, Singapore will likely see improvements in the second half of the year.
Moreover, IMF has warned governments not to rock the boat with trade wars and other disruptions at a time when the global economy is already sailing through choppy waters. We see downside risk and that means one has to be very careful, IMF first deputy managing director David Lipton told news channel. With trade tensions, not knowing where monetary policy is going to go, not knowing how China’s growth will turn out, it’s time to make sure policymakers do no harm.
Therefore the United States and other nations must resolve their trade conflicts a key downside risk the IMF has repeatedly warned about since President Donald Trump began imposing tariffs last year; the last thing which is required to be downturn.
The threat of political missteps is looming over the global economy amid a backlash against free trade that has fuelled the rise of populist governments around the world. The IMF had previously downgraded its outlook for world growth this year to the lowest since the financial crisis a decade ago, as conditions worsened in most major advanced economies. The US and China are locked in tense negotiations aimed at ending their nine-month trade war.
With trade tensions, not knowing where monetary policy is going to go, not knowing how China’s growth will turn out, it’s time to make sure policymakers do no harm. Even if they do come to an agreement, a trade deal between the world’s two biggest economies could have unintended consequences if China commits to purchases of US goods that crowd out imports from other countries in Asia.
There is also a risk of new fronts breaking out in the trade war. The European Union is considering hitting €10.2 billion (S$15.6 billion) worth of US goods with retaliatory tariffs over subsidies to Boeing, according to a draft list seen by Bloomberg News. The plan follows a US threat to seek US$11 billion (S$14.9 billion) in damages through duties on European goods.
Meanwhile, Britain’s departure from the European Union continues to drag on. Britain was due to leave the EU last month, but has twice had to ask the bloc’s other 27 leaders for an extension. The latest plan is for Britain to depart the bloc by Oct 31. In emerging markets, investors were reminded of the perils of government meddling in the economy when Brazil’s President Jair Bolsonaro ordered state-owned Petrobras to refrain from increasing diesel prices.
The hastily made decision revived fears of interventionist policies that plagued Latin America’s largest economy under previous governments. To be sure, there are signs that the global economy may be turning the corner. The IMF is stopping short of predicting a recession. Growth will recover in the second half of the year, said Bank of Japan governor Haruhiko Kuroda, noting that China’s stimulus measures are having an effect. It’s true that there are large downside risks.
In the meantime, the balance of risks remains skewed to the downside, Japanese Finance Minister Taro Aso said at a news conference following a meeting of G20 finance ministers and central bankers. We recognise the risk that growth prospects might deteriorate if weakening in key economies feed into each other.
Aso’s remarks dovetail with those of other officials gathered in Washington for the spring meetings of the World Bank and International Monetary Fund, many of whom fret that self-inflicted wounds from protectionist trade policies are to blame for the weakness. The week’s proceedings kicked off with another downgrade of global growth estimates from the IMF.
Bank of Japan Governor Haruhiko Kuroda has emphasized the need for countries to take steps to foster a more dynamic global economy. There is shared understanding among the G20 members that each country needs to take timely policy action. As the chair country of this year’s G20 proceedings, Japan wants to deepen talks on global imbalances an effort to divert Washington’s attention from bilateral trade imbalances and stave off US pressure to negotiate two-way trade deals.
The rules-based order of multilateralism is increasingly under threat and leaders must uphold international cooperation. So the United States must overcome trade differences with Europe, which erupted again this week when US. President Donald Trump threatened to impose tariffs on $11 billion (£8.4 billion) worth of European Union products, including commercial aircraft. The Trump administration was also at odds with other IMF stakeholders on the need to boost the global lender’s resources and update its governance.
Treasury Secretary Steven Mnuchin repeated the US opposition to increasing overall funding and shareholding quotas, likely meaning the effort to lift IMF funding and reshuffle voting rights was a dead issue at this week’s meetings. The voting quotas were last altered nearly a decade ago. In our view, the IMF currently has ample resources to achieve its mission, and countries also have considerable complementary resources should a crisis emerge, Mnuchin said in a statement for the IMF’s steering committee meeting that was posted on the IMF’s website.
Without US backing for an update to the IMF’s stakeholding weights, there was little prospect for a change at this week’s meetings. There is no majority in sight for any changes regarding IMF quotas. The IMF’s last quota increase was agreed in 2010, boosting the shareholding and influence of major emerging markets including China and Brazil. The IMF has current total lending capacity of about $1 trillion, including the New Arrangements to Borrow crisis fund that was greatly expanded in 2009 at the depths of the last financial crisis.
That fund is set to expire in November 2022. British finance minister Philip Hammond expressed concern the lack of a funding boost could hamper the IMF’s ability to step in to help Venezuela respond to its worsening humanitarian and economic crisis. This set of meetings is crucial to the debate about IMF quotas and funding for the IMF. We all anticipate that as events unfold in Venezuela, at some point there will be a need for a major programme to support Venezuela. So the UK is very keen to ensure that the IMF in particular is properly funded.
Oil-rich Venezuela is embroiled in political and economic turmoil as socialist President Nicolas Maduro battles to retain power in the face of US and Western powers’ backing of opposition leader Juan Guaido. IMF and World Bank shareholders, meanwhile, are still undecided on whether to recognise Guaido as the South American nation’s leader.