The global trading system is in need of major reforms amid a synchronized global economic slowdown and expectations of slower growth moving forward, International Monetary Fund Managing Director Kristalina Georgieva said Oct. 17.
Speaking to reporters in one of the IMF's annual meetings in Washington, Georgieva stressed the need to reform the current global trading system, which she said is largely representative of economies past. She also pushed the need to move toward a trade system that is enforced so that it can return to being the "growth engine" of the world.
Beyond rolling back crippling tariffs, there is a need to open trade in new areas such as services and e-commerce to adequately represent modern-day industries, she noted.
"The trade system we have today serves us well in the economy of the past but doesn't quite serve us for the economy of the future," Georgieva said. "We will have to find a way to be more agile and adaptable."
In its October World Economic Outlook report, the IMF predicted a 3.0% expansion in the global economy in 2019 — a 0.3-percentage-point downgrade from its previous forecast — and "modest" 3.4% growth in 2020. The group, although not forecasting a looming recession, attributed the slowdown to U.S. trade frictions with China as well as a global manufacturing slowdown and political uncertainty.
In her global policy agenda, Georgieva cautioned that growth could be derailed if trade disputes lead to technological cross-border restrictions or cause broader monetary, exchange rate or financial sector policy actions. Further weakening in risk sentiment or sharp tightening in financial conditions could heighten capital flow volatility, leading to necessary large-scale policy stimulus.
The IMF projects that U.S.-China tensions could reduce global GDP by 0.8% by 2020, though Georgieva said the organization was encouraged by last week's announcement that the U.S. and China reached a "phase one" agreement toward a more comprehensive deal, which she said could slow the GDP loss by 0.2%.
However, the detente was not enough to quell fears of the trade spat that has resulted in tariffs on hundreds of billions of dollars of goods from the two economic powerhouses.
The Trump administration has still not said it will not impose its planned 15% tariffs on roughly $160 billion of Chinese goods slated to go into effect in mid-December.
"Of course it's good news, but it's not good enough," Georgieva said. "What we need is not just a truce. We need trade peace."
Besides trade, Georgieva stressed international cooperation in areas such as financial regulatory reform and climate change.
Using monetary policy wisely in an era of low interest rates is crucial, she said, and should countries not cooperate on the climate front, a climate "disaster" could wipe out supply chains and lower global GDP by several percentage points.
The need for reforms is even more urgent to achieve strong growth in the medium- and long-term amid losses from automation and aging populations.
"Now is the time for countries with room in their budgets to deploy fiscal firepower," Georgieva said.
The IMF's annual fall meetings continue through October 19.