Slowdown in global growth | Sunday Observer

Slowdown in global growth

The economic impact of Coronavirus which has reached pandemic level has not been quantified as yet. However, it has adversely affected the entire spectrum of economic activities globally.

In this background, the Executive Director of the Lakshman Kadirgamar Institute of International Relations and Strategic Studies, Dr. Ganeshan Wignaraja expressed these views.

“Global growth is slowing down annually. In January 2020, the IMF predicted 3.3 percent growth this year and 3.4 percent next year. This is a small downgrade from what they predicted earlier as they were particularly worried about the slowdown in Indian growth. Last month the scenario changed with the spread of the coronavirus. Global growth is likely to be less than the January IMF projection and is likely to be well under 3.0 percent this year and possibly the next.

“My reading of the scenario is based on three developments. First, in Europe and Japan, an aging population has added to labour scarcity, low productivity and secular stagnation which could lead to slower growth.

“A second issue is the trade war between the USA and China and geographical tensions between the US and Iran. Third and unexpectedly, the adverse impact of the Coronavirus on tourism, transport and global supply chains will lower global growth.

“In terms of growth, the biggest impact is on China. The IMF predicted 5.6 percent growth in China which could slip below 5% in 2020. Even before the Coronavirus episode China’s growth was slowing. As China is an increasingly expensive place to do business, some firms have begun moving out to Southeast Asia and India.

“The virus has further disrupted global supply chains centred around China. The manufacturing hub in Asia and commodity export economies which supply final products to developed countries such as the USA, UK and Europe, are also affected.

“Supply chains and tourism are important fields that will see adverse effects. The slowing markets will have a negative impact on the global economy.

“All these things are happening when India is slowing down.  Last year, India grew at less than 5%. It is possible that a global slowdown will further reduce India’s growth this year. The new IMF growth projections will come out at the Spring meeting next month.

“A 0.5 to 1 percent global slowdown could be expected. It may not necessarily be another global financial crisis this year and much hinges on detecting and containing the spread of the virus.

“Sri Lanka has had slow growth for several years linked to insufficient investments and poor implementation of reforms. For instance, there was not enough investment in technology and innovations. There are bottlenecks in the education system. The country needs more skills in science, technology, engineering and mathematics as well as business studies and English to suit the demands of the private sector. The private sector seems to feel that universities do not produce sufficient amounts of qualified graduates for business needs.

“After the election, a structural reform agenda can help to pave the way to boost inclusive growth, competitiveness and equitable distribution of growth. The agenda needs to emphasise earning foreign exchange for debt repayment and investments in education and infrastructure.

“Some priority should be given to reforming agriculture with the introduction of new technology, modern methods and some financial subsidies. The development of rural infrastructure is necessary and part of that is energy investment to ensure stable power supplies through some combination of carbon, renewable and coal. It is necessary to introduce clean coal technology, harnessing solar and wind with a shift towards renewable energy to ensure a greener environment,” he said.