Mounting trade tensions and stresses in emerging markets are starting to take a toll on the world economy. The International Monetary Fund this week said world growth is plateauing and cut its outlook for first time since 2016. Those issues are dominating talks at the annual IMF and World Bank meetings in Bali, Indonesia this week, as well as a stock-market rout that’s spread from the US to Asia.
Here are the latest developments from the meetings in Bali:
No one safe from shocks in integrated world
This week’s global market selloff is a vivid example of how closely wired the world economy now is, according to Changyong Rhee, the Asia-Pacific director at the International Monetary Fund. "This really shows very well how the world is integrated," he told reporters. "No one can be free from these sort of shocks."
In an earlier briefing, Rhee warned that headwinds from financial tightening and trade tensions may last for some time, which is why policy makers need to "save their ammunition for when it is truly needed."
No magic bullet for EMs amid volatility
There’s no "magic bullet" for how emerging economies can respond to the volatility that’s shaking markets, Hyun Song Shin, an economic adviser and head of research at the Bank for International Settlements, told Bloomberg Television. Instead, governments need to do the basics right like build buffers and bolster underlying fundamentals.
"There needs to be a certain amount of self awareness that when the going is good, there is plentiful funding but that is not simply a vote of confidence in your policy," he said. "It is a reflecting of global financial conditions. The lesson is you shouldn’t drink too much from the fountain of global liquidity."
Policy makers need to be aware of spillover and spillback effects, he said. "In this kind of connected world, policies will inevitably have spillover effects but everyone needs to do their part," he said, adding that the Fed is aware of this. "It is not true that the Fed has ignored the global economy."
Games of Thrones battle engulfing world: Widodo
Winter is coming for the world economy. That’s the warning from Indonesian President Joko Widodo, who channeled the popular TV series "Game of Thrones" in his keynote speech at the IMF and World Bank meetings in Bali. In stark language, he said alliances between major powers are breaking down and the world is rapidly descending into a battle for supremacy akin to those seen on the show.
He also warned that emerging markets are under pressure and policy makers should allow for monetary patience and fiscal tolerance to offset rising trade protectionism, technological disruption and market turmoil.
"Are we so busy fighting with each other and competing against each other that we fail to notice the things which are increasingly threatening all of us alike, rich and poor, large and small," Widodo aked. "When victory and defeat have been achieved will we wake up to a world that is shattered? It will be an empty prize, to become the most successful economy in a drowning world."
It’s not the first time that Widodo has drawn an analogy with a TV series or movie. In a speech last month he described conflicts over world resources as an "infinity war" that he would fight like the superheros in the "Avengers".
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