‘Sri Lanka could benefit from int’l trade wars’ | Sunday Observer

‘Sri Lanka could benefit from int’l trade wars’

20 October, 2019

The International Monetary Fund (IMF) deliberations in Washington is an opportune time for Sri Lanka and the rest of the world to take stock of the economy and prepare to face global headwinds and benefit from tailwinds that may be triggered due to the ongoing trade wars between the US-China and US-EU, Lakshman Kadirgamar Institute of International Relations and Strategic Studies, Executive Director Dr. Ganeshan Wignaraja said in an interview with the BusinessObserver.

The IMF is forecasting a gloomy outlook for the global economy in 2019 than its previous forecast. According to the global lender global growth this year is expected to be at three percent a downgrade from its April forecast. However, there is a silver lining for 2020 as growth is expected to pick up during the year to 3.4 percent.

According to the global lender the U.S.-China trade war is expected to cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis.

The IMF said its latest World Economic Outlook projections show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from global trade friction.

Without significant progress, Trump is set to increase the tariff rate on Chinese goods worth $250 bn to 30 percent from 25 percent next Tuesday.

The United States has more to lose from a full-blown trade war with the EU than it does with its current conflict with China, experts have told CNBC.

There have already been tariffs on European steel and aluminum — which led the bloc to impose duties of 25% on $2.8 billion of U.S. products in June 2018, and there’s an ongoing dispute regarding Airbus and Boeing — but experts believe a wider spat with Europe would be much more damaging than the current tit-for-tat with China. Leaders of the G-7, the world’s seven largest economies, are due to talk global trade at a meeting in France later this week.

“This pick up in 2020 according to economists will be due to emerging markets expected to perform well compared to 2019. The IMF is bullish on India, emerging Asia, Europe, Russia, Brazil and South Africa. The trade wars this year between US and China intensifying and spillovers between US and EU and Brexit , another negative factor to impact both Europe and the UK is thought to be worse than expected and will affect adversely market sentiments across the globe,” Dr. Wignaraja said adding that the trade battles have particularly affected global production network geographically which interlinks trade and investments.

However, according to Dr. Wignaraja the 2020 forecast by the global lender is a bit tad opportunistic or a bit over optimistic because the repercussions of the trade wars between the US and China and Brexirt and Europe may be far worse than we could expect. “The trade war with the US is having a negative impact on the export dependent manufacturing engine of China. The US consumer confidence is low as well. In Europe the Brexit could lead to a damaging impact particularly for the UK whose trade is highly dependent on Europe. It will take time for them to find new markets and suppliers. All of this is expected to affect commodity prices globally,” Dr. Wignaraja said. He said coupled with this Western countries and China are being increasingly affected by the shrinking labor forces due to population aging and barriers to inbound migration .This will result in secular stagnation or a long term economic slump in Western countries.

“There has to be dialogues and diplomacy among countries to diffuse trade tensions and pursue multilateral cooperation. Economies should deal with the vulnerabilities to the global financial system particularly to have stress tests for vulnerable financial institutions and where possible fiscal and monetary policy may be useful to promote demand,” Dr. Wignaraja said.

Coming to Sri Lanka he said the election time is an opportunity to reset policies and fine tune them to ensure macro- economic stability in the country. The priority for any incoming administration will be debt management and continuing with fiscal consolidations including switching expenditure to more productive activities and getting a hand on loss making State owned enterprises. He said the country needs to pursue gradual market oriented reforms to build business confidence and boost foreign exchange earnings which means measures to increase exports, promote inbound tourism and remittances. To ensure food security the country should also boost agricultural productivity and promote more efficient irrigation. Investing on higher education to deal with skills mismatch with the private sector demands.

He said university curricular in science and technology should be updated to meet the needs of the private sector. We need to make internships in the private sector a compulsory part of degree courses and improve university careers offices to international standards.

While previous lower-level talks between US and Chinese officials aimed to create a good atmosphere for the upcoming meeting, the US blacklisting of Chinese entities has generated a negative atmosphere instead, Chinese officials told Reuters.