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"The world is slowing down". That was the buzz in the World Economic Outlook report released by the IMF and the World Bank on Monday in Washington. "There is a synchronized global economic slowdown," said International Monetary Fund chief economist Gita Gopinath in a press brief on Monday morning. The slowdown of around 0.8 percent is due to the ongoing trade war between the US and China, and other major geopolitical threats. The April forecast meanwhile, has been further downgraded to 0.3 percent.

Due to these issues, almost all the central banks around the world are running easing monetary policies. Had the easing monetary policies not run, the global outlook could have been lower by 0.5 percent, Gita explained. However, the SBP in Pakistan is operating on a different tangent, as the hawks are still dominant in Karachi.

On a question by our fellow colleague on outlook on Pakistan under the IMF programme, Economist Gian Maria Milesi-Ferretti responded positively that Pakistan has an ambitious programme with the IMF which has exceeded expectations though domestic demand, as pre expected, would compress in the adjustment period. That is why the IMF had reduced the growth forecast for Pakistan to 2.4 percent this year. This is likely to pick up after 2020. The fund representative implied that the global financial flows demand is picking up for Pakistan and that will help in reviving growth.Having said that, a word of caution was added -macroeconomic imbalances remain and the oil importing country is sensitive to oil prices movement. The bottom line is that so far good signs, and there is a notable recovery.

In response to a question about how regional tension on Kashmir could affect India's and Pakistan's economic growth, the fund team just responded that Indian growth was to remain strong as tax cuts on corporate front would pick up the growth momentum. In a way, the question was diplomatically avoided.

Coming back to global outlook, the manufacturing is expected to remain suppressed due to US-China trade war. On questions of quantum of impact and its persistence, the fund team responded that details of US-China trade deal would narrate the story. The slowdown in automobile manufacturing was associated to new Euro car emission standards. The good news is that the services across the globe continues to hold up and wage employment is growing due to it.

Furthermore, the emerging economies growth has been revised down to 3.9 percent due to structural slowdown in China and for other reasons - the growth is expected to rebound to 4.6 percent in 2020. In case of the advanced world, the monetary policy could not be the only game, as this would have to be supported by fiscal side, lamented Gita. For instance, countries like Germany could borrow at low rates to invest in infrastructure to boost growth and generate employment.

One may wonder, how can a country like Pakistan accrue benefits from such an environment - perhaps attract investment by showing high rates and to invest in much needed infrastructure? Well, the investment is likely to be attracted. However, the danger that it will all get sucked up in the fiscal black hole remains.

Copyright Business Recorder, 2019


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