IMF chief says fast pace of change necessitates trade system reform

Job losses from automation, dislocations from trade and aging populations make the need for reforms more urgent said Kristalina Georgieva.

At a briefing during the IMF/World Bank 2019 Annual Fall Meetings IMF Managing Director Kristalina Georgieva called for a review of the world trading system to cope with technological disruption and uncertainty of climate change which impact global growth. AFPShow less

In the face of a slowing global economy, the world needs to learn to cope with technology disrupting established systems and the uncertainty brought on by forces of climate change that can drastically curtail growth, the managing director of the International Monetary Fund said.

“We are operating in a very fast-moving world. We all have to get accustomed to the pace of change,” Kristalina Georgieva said at a briefing on Thursday.

“It will never be that slow in the future. And the factors that drive uncertainty range from technology creating disruptions, new opportunities but also new risks, to climate change, we can have a disaster that wipes a couple of percentage points of GDP and disrupts supply chains. We have been reaching agreements on trade primarily based on the past. We have to think about what we need in the future.”

Ms Georgieva was speaking in the wake news the US and China had reached a breakthrough in the year long trade war, which along with Brexit uncertainty, increased market volatility and caused the IMF and the World Bank to revise growth projections for the global economy this year and next.

This week the IMF revised down its global growth forecast for the fifth time since October, reducing its projection to 3 per cent for 2019 and 3.4 per cent for next year. About 90 per cent of the world is experiencing a “synchronized slowdown,” Ms Georgieva said.

The US economy will decelerate to 2.4 per cent this year, and China, which has recorded more than a decade of expansion, is forecast to slow to 6.1 per cent. Key issues remain between the two countries despite news of a breakthrough in trade talks last week, which will make lifting the cloud of uncertainty more difficult. The acrimony between the world’s two largest economies, is reducing global GDP growth by 0.8 per cent which is equivalent to $700 billion.

“It's good news but not good enough,” Ms Georgieva said in reference to an agreement between Beijing and Washington. “What we need is to reach not just a truce, we need to have trade peace…so we can see trade return to its role as the engine of world economy…We came to where we not just because of economic gain but for peace…trade is great for peace. Research shows that when countries trade, they don’t fight that much.”

In addition to calling for a stronger trading system, the fund’s director said another priority is for able countries and central banks to use monetary policy wisely and not ignore financial stability risks that come with prolonged low interest rates.

“Now is the time for countries with room in their budgets to deploy – or get ready to deploy – fiscal firepower,” she said. “Of course, with global public debt at a record high, this advice will not work everywhere.”

Structural reforms should be of paramount importance in the face of lagging productivity that calls for measures to achieve stronger and more resilient growth over the medium and long-term.

Planning for the future requires countries reducing red tape and boosting female labour force participation.

“Potential job losses from automation, dislocations from trade, and aging populations makes the need for reforms even more urgent,” said Ms Georgieva.

The fund’s director stressed the need for stronger international cooperation on everything from financial regulatory reform, to addressing climate change, adapting to fintech, fighting money laundering.

“So many of our challenges do not recognize borders,” she said, adding, “Our solutions must operate by the same principle.”