Trade war and real war haunt the World Bank and IMF meetings | Business
From Syria to social media, world leaders have many urgent matters to discuss when they congregate at international gatherings. But it is the threat to the world economy from Donald Trump’s trade dispute with China that is poised to dominate the annual spring meetings of the International Monetary Fund and the World Bank this week.
Opening in Washington on Monday and hosted by the IMF, the meetings will be attended by leaders and central bankers, including Mark Carney of the Bank of England and the chancellor, Philip Hammond.
Both organisations are chiefly concerned with the global economy. The IMF is the world’s lender of last resort, helping to bail out struggling countries and promote financial stability. The World Bank is focused on lending to poor and middle-income countries; its meetings in the US capital will be attended by international development ministers, including the UK’s Penny Mordaunt.
The gatherings are taking place at a difficult moment for the world economy, which is starting to show signs of faltering after the best year for growth since the financial crisis.
The IMF meeting comes nearly three months after Trump spoke at Davos, when there was less news from the global economy to worry the world’s elite. The intervening weeks have been marked by a rollercoaster ride for financial markets, rattled by fears over rising inflation as well as weaker economic data and tougher talk from the White House on trade tariffs.
Alongside the prospect of a breakdown in global trade, other items likely to be on the agenda are the mounting tensions in the Middle East and the prospect of a new cold war between the west and Russia, as well as the possibility of central banks raising interest rates more quickly than expected in order to curb inflationary pressures.
Facebook’s control of personal data and the role of big technology companies in society, as well as gender equality and the divide between rich and poor, will also feature.
How high-stakes are this year’s meetings? Lucy O’Carroll, chief economist at Aberdeen Standard Investments, says: “There’s been a fair amount of competition over the past 10 years, when IMF meetings have been important at many points. But this [year] feels timely, given the issues around trade.”
Trade warChristine Lagarde, the managing director of the IMF, warned last week the current system for world trade was “in danger of being torn apart”, with the potential to upset the current economic upswing and make consumers poorer.
In a speech in Hong Kong setting the tone for this week’s meeting, Lagarde said there were “darker clouds looming” for the global economy as trade tensions simmer between the US and China. Although the spring meeting won’t act as a forum for solving the impasse, it could help policymakers better understand the consequences or likely remedies for the dispute.
Although there have been warmer words from Washington and Beijing over the standoff in recent days, Bill Blain of the City trading firm Mint Partners says: “Whatever the pundits and analysts say … the game is not over.”
But while the trade war between the US and China ticks over, there are signs of a new cold war between Russia and the west heating up over the conflict in Syria, now into its seventh year with little sign of abating. The war will be among the most serious matters beyond the official agenda for world leaders gathering in Washington this week.
Trump warned Russia last week to “get ready” for US missile strikes in Syria after a UN security council meeting failed to stave off the prospect of military confrontation. His warning comes in an escalating row between the two countries over the recent chemical weapons attack on the Syrian rebel-held town of Douma.
State of the global economyAfter every one of the world’s biggest economies tracked by the Organisation for Economic Cooperation and Development grew last year, there are fears that the synchronous upswing for global growth could be fading. Recent survey data has pointed to weaker growth in Europe, while poor weather has also blown economic activity off course in the past few months.
The rate of economic growth in the UK is expected to have fallen by half in the opening months of the year, according to the National Institute for Economic and Social Research. Lagarde also used her speech in Hong Kong to warn that growth would probably begin to falter from the end of next year.
The rise of protectionism in the US, and the possibility of a similar approach in Britain after Brexit, could lead to slower global growth if more countries erect greater barriers to international trade, capital flows and migration. According to the consultancy Oxford Economics, an all-out trade war would lead to “pronounced” slowdown for the world economy, knocking 0.5% off worldwide growth.
Lagarde will host an event on Thursday to advise politicians to make economic reforms while the “sun is still shining”, which could help to sustain the upswing for global growth and spread the benefits across all members of society.
Inflation and interest ratesMajor central banks remained cautious last year despite the widespread rebound for global growth, which might have usually tempted them to begin raising interest rates to prevent inflation from spiralling up. This year could be different: there are flickering signs of stronger growth in prices that could push the world’s most important central bank – the US Federal Reserve – to raise rates more quickly than expected.
Markets plunged in February on signs of rising pay for American workers, which could lead companies to raise prices to accommodate higher wage bills. US inflation rose at the fastest rate in a year last month.
The Fed will probably raise rates three more times this year, with another three increases in 2019, according to Kallum Pickering, senior UK economist at the City bank Berenberg. “The IMF will probably say something along the lines that tighter monetary policy in the US, UK and Europe reflects improving global conditions and should not pose a threat,” he says.
Gender and inequalityIn the wake of the Harvey Weinstein sex abuse scandal and revelations of pay disparities between men and women in the UK, gender equality issues will be in sharp focus at the IMF meetings this year.
The president of the World Bank, Jim Yong Kim, will speak about the organisation’s funding for research into the subject around the world. The World Bank and the Sexual Violence Research Initiative are awarding funds to 11 teams across the globe to research ways to address a global epidemic of gender-based violence. More than a third of women worldwide have experienced physical or sexual violence from a partner or from another person, the organisation says.
The IMF will also look closely at ways to reform tax and spending policies to help narrow inequality between the rich and poor, as well as suggesting new ways to promote more inclusive growth.
TechnologyAfter Facebook founder Mark Zuckerberg’s appearance before the US Senate to answer questions over data misuse last week, the IMF will take another look at the shifting sands for global technology companies.
Lagarde will lead a panel discussion titled “digitalisation and the new gilded age”, covering the rise to near-monopoly status of the likes of Facebook and Google. It will look at whether now would be time for a new era of “trust busting”, echoing President Roosevelt’s breakup of once-dominant Standard Oil into 34 companies in the early 20th century.
The spectre of “technological unemployment”, as foreseen by the British economist John Maynard Keynes, will also be up for discussion, while the president of the World Bank will use a lecture to discuss how technology can help bridge the divide between rich and poor countries.
Technology companies have grown so large in recent years that they operate beyond the control of governments – with some tech evangelists embracing this shift because of its potential to liberate people from the reaches of the state. But the questions over the Facebook data breach in the wake of the Cambridge Analytica revelations may have shown the moment has come when the balance is tipping.