WASHINGTON — An official with the International Monetary Fund (IMF) said Wednesday that trade tensions could generate uncertainty and weigh on business confidence, urging countries to address the issue and ensure that the benefits of trade continue to support global recovery from the COVID-19 pandemic.
“The global economy will come out of this deep slump, but looking ahead to the recovery, it will be very important to ensure that there are as few obstacles as possible in the recovery path,” Malhar Nabar, division chief of the World Economic Studies Division in the IMF’s Research Department, told Xinhua in a video interview Wednesday.
By “obstacles,” he means factors that can generate uncertainty and weigh on business confidence, and have a negative impact on productivity “because it forces businesses to make decisions based on anticipation of difficulties in sourcing parts and components.”
“We are calling for countries to address the economic grievances that are behind the tension that we see, to address the gaps in the multilateral rules-based trading system, to adapt it to the changing global economy,” Nabar said.
He urged countries to ensure that the benefits of trade that “we’ve all seen for the last several years” continue to support the recovery going forward.
Global trade will suffer a deep contraction of 11.9 percent this year, “reflecting considerably weaker demand for goods and services,” including tourism, according to the IMF’s newly released update to the April World Economic Outlook (WEO).
The multilateral lender projected a 4.9-percent contraction for the global economy in 2020, which is 1.9 percentage points below its earlier forecast, indicating a grimmer economic outlook as the pandemic continues to ripple across the globe.
“The main reason for the downgrade is because we now have more data to assess than we had in April to see what the impact of the pandemic has been. And what we’re seeing is that it has actually had a bigger effect on (economic) activity,” Nabar told Xinhua.
This report also showed that the IMF expects a partial recovery in 2021, projecting a global growth of 5.4 percent, 0.4 percentage point below its April forecast.
“Even in places where economies are exiting from lockdown and reopening, we think that there will be more persistent social distancing, as people reduce exposure to each other from fear of a contagion,” Nabar said. “This will last longer into the second half of this year.”
Sizable fiscal and financial sector countermeasures deployed in several countries since the start of the crisis have forestalled worse near-term losses, according to the latest WEO report, which noted that fiscal measures amounting to about 11 trillion U.S. dollars have been announced worldwide.
“It’s important for us to recognize that when confronted with a deep downturn of this kind, something we’ve never seen before the magnitude and the breadth of this downturn, that policies should respond aggressively to prevent that even worse outcome from happening,” Nabar said.
Nabar, however, noted it could be an issue going forward. “It’s true that with the elevated debt levels and if financial conditions were to tighten again,” it could create some problems for some economies, especially emerging markets and developing economies, and “tip them into a very difficult situation.”
The report showed that public debt this year is projected to reach the highest level in recorded history in relation to gross domestic product (GDP), in both advanced and emerging markets and developing economies.
The multilateral lender is projecting a synchronized deep downturn in 2020 for both advanced economies, and emerging market and developing economies, noting that over 95 percent of countries are projected to have negative per capita income growth this year.
Advanced economies are projected to contract 8 percent this year, while emerging markets and developing economies are projected to shrink by 3 percent this year.
China is expected to grow by 1 percent, 0.2 percentage point lower than April’s forecast, the only major economy that could see growth this year.
Noting that most of China had reopened by early April, the IMF official said some of the high frequency indicators, especially industrial production, fixed asset investment and services output are “picking up,” with the help of a “very strong, supportive” policy response.
Nabar said investment and services output in China have actually been stronger than what the IMF had expected, calling it “a good sign” for the recovery path going forward.
“One thing that of course is very important to bear in mind is that the global headwinds are stronger than we had anticipated,” he said. “And that of course means stronger headwinds to China’s recovery.”
“Stronger growth in China is of course primarily going to be a benefit to China itself, the Chinese economy, but also for the global economy because of the large size and large footprint of China in the global economy,” he said.