Business

Weak trade delaying global recovery, says Bank of Japan Gov. Haruhiko Kuroda

Bloomberg

The timing of a global economic recovery is being delayed as weaker global trade weighs on manufacturing, Bank of Japan Gov. Haruhiko Kuroda has said.

Recent developments over the U.S.-China trade conflict together with Brexit “have reduced uncertainty somewhat,” Kuroda said to reporters in Washington on Thursday, on the sidelines of International Monetary Fund meetings. “But as you know,” he added, “the scope of the U.S.-China trade and economic conflicts is very large, and it remains to be seen how the situation will develop down the road.

“I don’t think uncertainty is completely gone,” he said. “Add geopolitical risks; overall risks remain high.”

A trade slump has hurt manufacturing, while employment conditions and consumption remain strong, the central bank chief noted. Generally speaking, monetary easing has continued for a long time and some nations have fallen into severe financial hardship, he said.

For Japan, Kuroda said the BOJ would have to continue its massive monetary easing as its 2 percent inflation goal remains distant. He reiterated that the bank will ease further without hesitation if risks mount to threaten price momentum.

The sheer scale of challenges confronting the world economy were laid bare by Tharman Shanmugaratnam, a senior minister in Singapore’s government, who painted the picture as bleak unless governments get their act together.

While Tharman may represent a tiny city state, he is noted as one of the world’s leading thinkers on economics and public policy. He chairs the Group of Thirty, an independent global council of economic and financial leaders.

Calling for a “new norm” for policy making, Tharman said the dangers go well beyond short-term issues like trade tensions and much more into slow burn areas including unfunded pension schemes and how to tackle climate change.

There is “profound uncertainty” over the future, and profound denial over the nature of the problem, he said during a panel discussion.

The downbeat situation of the world economy is well understood. But could there be upside surprises?

That was the question considered by economists during a panel discussion Thursday. There was consensus that a cooling of U.S. and China trade tensions and a possible deal on Brexit would boost sentiment.

But there are other strengths too. Historically tight labor markets, rising wages and the potential for inflation are putting a floor under weakening demand, Catherine Mann, global chief economist with Citigroup Inc., told the panel.

“Throughout this entire year, markets have underestimated the strength of domestic resilience,” she said.

Heather Hagerty of Fidelity Investments pointed to the policy front, where central banks have shifted to easing from raising interest rates. “I feel a lot better than even a year ago when they were headed in the opposite direction,” she said.

The award for blue-sky thinking went to Paul Gruenwald, chief global economist at S&P Global Ratings, who argued that a push for spending on initiatives related to a cleaner environment, including green finance and ESG. That’s a potential new growth engine, he said.

Other key themes emerging at the IMF and World Bank meetings included cries for more government spending to support growth, and the potential impact of the U.K.’s divorce from the European Union — with a possible Brexit agreement on the horizon.

Kristalina Georgieva, the IMF’s managing director, called on all sides to bring the emerging Brexit agreement over the finish line.

“Very similar to the pound, which jumped, I saw the news and jumped,” said Georgieva, a former EU budget commissioner, at a news conference in Washington. “Great! We would like to see the agreement being reached. My hope for the next few days is that the will holds in all quarters.”

A “no-deal” exit could cost the U.K. economy “3.5 percent or more, up to 5 percent loss of GDP,” while the EU’s hit would be half a percentage point, Georgieva said.

The IMF head also stepped into the debate about low interest rates, and whether governments need to spend more to spur growth and ease the burden on central banks.

“Now is the time for countries with room in their budget to deploy or get ready to deploy fiscal firepower,” she said.

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