Tue. Oct 22nd, 2019

These are the signs that most concern


The world several fronts that threaten to ballast the economic growth to level global. Both the major powers and emerging countries face the impact of the trade war, but it is not the only front that can cause the economy to fall, although it can condemn the growth of a whole generation.

This was reflected this week in a speech by Kristalina Gueorguieva, new director of the International Monetary Fund (IMF), who in a truffled warning speech presented an overview of Brake “Synchronized” in up to 90% of the planet. Two years ago, 75% of the world grew, "today the proportion is even greater, but unfortunately this time the growth is slowing down," Gueorguieva said. When you reread your first great speech, you respond to what signals concern most in the almighty organism.






The big risk

The trade war, the biggest impact

The trade war It is the main factor of current instability. The ups and downs in the tariff war and the negotiations between China and the United States, as well as a future front with the European Union, center the IMF's doubts about the future of the global economy.

The last meetings of this week have brought the positions between the authorities of both giants. A story that has been lived on previous occasions and then ended up in nothing, or with new rounds of tariffs and vetoes to Asian companies.

This uncertainty and lack of clarity ends up causing a "loss of confidence and market reaction." A cocktail that predicts nothing good. "In a commercial war, everyone loses," Gueorguieva launched. According to the calculations of the agency, the losses from the commercial war would be up to 700,000 million dollars (633,800 million euros) in 2020 alone.

U.S. President Donald Trump and his Chinese counterpart Xi Jinping

U.S. President Donald Trump and his Chinese counterpart Xi Jinping
(Kevin Lamarque / Reuters)





The danger extends

The effect spread to the entire economy

The impact of the commercial war for now has been limited to the commercial exchanges themselves, whose growth "has practically paralyzed", and to the industry, with strong impacts in Germany. But “there is a serious risk that services and consumption soon be affected ”if the situation lengthens.





As if the trade front were not enough, various uncertainties also come into play here, such as the disorderly exit of the United Kingdom from the European Union, various geopolitical tensions, increases in the price of oil or a change in monetary policy. The interconnection of currencies and economies, the contagion effect can be maximized.

Hence, the IMF urges to strengthen trade agreements to “find a lasting solution” by addressing the challenge of trade in services or the e-commerce. The idea is that the larger open front be closed to avoid greater evils.

Industry already suffers the impact of the commercial war

Industry already suffers the impact of the commercial war
(Krisztian Bocsi / Bloomberg)




On another front of the trade war, the IMF also criticized that the United States has launched for Huawei and Chinese technology that could put national security at risk. He veto approved against the Asian company It can force governments and companies to choose between one side or another. Gueorguieva summed up everything with a clear metaphor. He spoke of a “digital Berlin wall” that can “force” countries to choose between technological systems.






Markets

Investor risk goes more

Not everything is commercial war in the range of risks. In an environment of low rates, in which deposits do not give profitability and even companies have to pay to save their money, and the bonds are in negative rates, investors are taking more and more risks to get a good return on their money.

"Throughout the world, investors are taking greater risks," the IMF launches, citing pension or insurance funds, "who are making more risky investments to achieve the performance they have set as their objective." "All this creates financial vulnerabilities," the Bulgarian continued in her speech.

Also, the brick has become one of the preferred investments, which has ended up causing a bubble in the big world capitals and other cities.

A trader on the New York Stock Exchange

A trader on the New York Stock Exchange
(Johannes Eisele / Afp)





Flows

Fall of the emerging and capital flight






Alternatives for investors also go through Look for opportunities in countries emerging, pick up the IMF. But the golden age of the emerging countries, in which they were the motor of their regions and dreamed of disputing the world order to the hegemonic economies, has lagged behind. The exponents, grouped under the acronym BRICS (Brazil, Russia, India, China, South Africa) and as cited years ago, no longer arouse as much admiration and pushing capacity as before. In China "growth is gradually decreasing with respect to the rapid pace it has carried for many years"; in South America, Argentina, Ecuador or Venezuela suffer; in European lands Turkey; doubts come to South Africa …

"In some of the major emerging market economies, such as India and Brazil, the slowdown is even more pronounced this year," the IMF said in comparison to the euro zone or the United States. "The precarious perspectives pose challenges for many countries that are confronted with difficulties," the directive said.

A 100 Argentine peso bill

A 100 Argentine peso bill
(Agustin Marcarian / Reuters)









To these difficulties is added the possibility that investors leave these countries aside. In the panorama of low rates mentioned above, investors have sought greater returns in emerging markets, such as Argentina, to seek higher returns. But if things get twisted they will want to repatriate their money to have it safe. "This leaves many smaller economies exposed to a sudden reversal of capital flows," read a capital flight, said Gueorguieva.


Psaivos

The public and private debt bomb

Liabilities are another face to consider. "Globally, public debt is close to historical levels," Gueorguieva launched. A coordinated rise to which neither powers nor emerging nations have escaped. In case of crisis, the countries with the highest debt ratio in relation to GDP they are theoretically more vulnerable. In this case Spain does not escape danger, with a debt that has been around 100% for years.

Kristalina Gueorguieva is in charge of the IMF

Kristalina Gueorguieva is in charge of the IMF
(Nicholas Kamm / Afp)









But if you look at private sector The thing is not better. In the event of a significant slowdown, corporate debt at risk of default would rise to 19 billion dollars, more than ten times the economy of Spain, by way of example. These are levels that were not even seen in the last financial crisis. And everything goes to more: "companies are taking advantage of low rates to accumulate debt and finance mergers and acquisitions, instead of investing."


Green economy

The danger of not acting against climate change

A final focus of concern is to fall short in the fight against climate change, something that can have an impact on the growth of economies and employment at the planetary level. "It is a crisis to which no one is immune and over which we all have the responsibility to act," said the IMF.

A march on the planet in Montreal, Canada, in September

A march on the planet in Montreal, Canada, in September
(Eric Demers / EP)




From the entity called to coordinate a global response because "crossing arms has a price too high." From the agency they remember success stories in carbon taxes and call to invest thinking in green. "Not only do you need to mitigate the damage, but also adapt to the future," Gueorguieva launched. The estimated impact of not acting is a 30% reduction in world GDP per capita by 2100, according to the Boston Consulting Group's Center for Climate Action (BCG).

Another front for an economy already shrinking.



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