Global leaders eye ‘modest rebound’

Bank of England chief Mark Carney speaks at a meeting of IMF and World Bank leaders in Washington. A slowdown in growth is damaging attempts to fight global poverty, the forum was told. (Reuters)
Updated 19 October 2019

Global leaders eye ‘modest rebound’

  • Trade wars dominate discussions among G20 nations as Saudi Arabia begins preparations to chair the group in 2020

WASHINGTON: The world’s finance leaders agree that growth has slowed, but they remain hopeful for a modest rebound next year as long as trade and geopolitical tensions do not worsen.

That was the assessment from finance ministers and central bank governors of the Group of 20 major industrial countries.

Those officials met ahead of discussions on Saturday with the policy-setting panels of the 189-nation International Monetary Fund and the its sister lending organization, the World Bank.

The leaders of those two organizations appealed to their member countries on to resolve the widening disagreements on trade, climate change and other issues, warning that the continued diversions threatened to worsen the current global slowdown.

Japanese Finance Minister Taro Aso, the current chair of the G20 finance group, said that while current conditions are less than optimal, there was still hope that conditions will improve.

Speaking after the G20 discussions ended, Aso said: “We broadly agreed that the global economic expansion continues, but its pace remains weak.”

Aso said the group felt that the risks remained weighted to the downside with the major threats coming from trade wars and geopolitical tensions. But he said the expectation was that growth would pick up in 2020.

Japan served as chair of the G20 this year, a position that will be taken by Saudi Arabia in 2020.

The US is represented at the meetings by Treasury Secretary Steven Mnuchin and Federal Reserve Chairman Jerome Powell.

The IMF in its updated economic outlook prepared for this week’s meetings projected the global economy would expand by just 3 percent this year, the weakest showing in a decade, with 90 percent of the globe experiencing a downshift in growth this year. But it is forecasting growth will accelerate slightly to 3.4 percent in 2020, still below the 3.6 percent global growth seen in 2018.

“Trade tensions are now taking a toll on business confidence and investment,” IMF Managing Director Kristalina Georgieva said in an opening speech to finance officials on Friday.

Georgieva, a Bulgarian economist who had been the No. 2 official at the World Bank, recognized the accomplishments of her IMF predecessor, Christine Lagarde, the first woman to head that agency. Lagarde was in the audience for the speech.

“As someone who grew up behind the Iron Curtain, I could never have expected to lead the IMF,” Georgieva said. She noted she had witnessed the devastation of bad economic policies when her mother lost 98 percent of her life savings during a period of hyperinflation in the 1990s in Bulgaria.

World Bank President David Malpass said the slowdown in global growth was hurting efforts to help the 700 million people around the world living in extreme poverty, especially in nations trying to cope with a flood of refugees from regional conflicts.

“Many countries are facing fragility, conflict and violence, making development even more urgent and difficult,” he said.

The fall meetings of the IMF and World Bank meetings were expected to be dominated by the trade disputes triggered by the Trump administration’s get-tough policies aimed at lowering America’s huge trade deficits and boosting US manufacturing jobs. So far, those efforts have made little headway.

In addition to the battle between the US and China, higher US tariffs went into effect Friday on $7.5 billion in European goods coming into the US in a dispute involving airplane subsidies.

Bruno Le Maire, France’s finance minister, said that China probably would be the real winner in the US-EU trade fight. He said the EU was ready to negotiate a settlement to avoid the tariffs but so far, the Trump administration has rejected those efforts.

“From the beginning, we have made it clear that we want to avoid a trade war,” Le Maire said. “The response from the US administration has been a closed door.”

Georgieva said a tentative US-China trade agreement announced last week should lessen the damage to the global economy slightly, but solid global growth would not return until the two countries resolved their differences and all countries moved to modernize the rules of global trade to lessen future disputes.


Dow drops 1,000 points as pandemic fears heighten

Updated 4 min 39 sec ago

Dow drops 1,000 points as pandemic fears heighten

  • The benchmark S&P 500 fell about 12 percent

BENGALURU: The Dow Jones Industrials slumped more than 1,000 points in intraday trading for the third time this week on Friday, as the rapidly spreading coronavirus outbreak raised fears of global recession.

Over the week, virus fears have wiped nearly $3 trillion off the combined market value of S&P 500 companies, putting the three main indexes on track for their worst week since the 2008 global financial crisis.

As the world prepares for a potential pandemic, investors rushed to safe assets, deepening an inversion of the US Treasury yield curve, a classic recession signal.

The benchmark S&P 500 fell about 12 percent from its record closing high hit last week, confirming its fastest correction in history on Thursday.

In morning trade, the Dow Jones Industrial Average was down 1,058.08 points, or 4.11 percent, while the S&P 500 was down 118.91 points, or 3.99 percent.

All the 11 S&P sectors shed at least 2 percent and the defensive utilities, consumer staples and real estate sectors dropped more than 3 percent. The three sectors have outperformed the benchmark index this month.

“This selling is a bit extreme for something that we don’t know enough about,” said Robert Pavlik, chief investment strategist at SlateStone Wealth LLC in New York.

“What I do know is that the coronavirus is not going to lead us into a financial crisis that is long lasting. It could put us in a technical recession, but the real concern is does that recession cause the US consumer to pare back on spending?“

While the magnitude of the economic damage from the containment measures, which have crippled supply chains and hit business investment, remained unclear, analysts have sharply downgraded their outlook for growth and corporate earnings.

Adding to worries, the Commerce Department’s data on Friday showed US consumer spending rose less than expected in January, a loss of momentum that could be exacerbated by the virus outbreak.

Traders are now pricing in an interest rate cut by the Federal Reserve as soon as next month, but many have expressed doubts about how this would mitigate the impact of the outbreak.

Among individual stocks, Mylan NV dropped 6 percent after the drugmaker cautioned a financial hit from the coronavirus outbreak and warned of drug shortages in case of continued spread of the virus.

Declining issues outnumbered advancers for a 9.24-to-1 ratio on the NYSE and a 4.63-to-1 ratio on the Nasdaq.

The S&P index recorded no new 52-week highs and 108 new lows, while the Nasdaq recorded 11 new highs and 386 new lows.