The latest assessment of the global economy by the International Monetary Fund warned that the world would become a “poorer and more dangerous place” because of the trade war between the US and China.
The forecast for global growth for the current year and the next have been lowered by the IMF. The economic recovery of the global economy form the 2008 financial crisis would be hampered if there is a full-blown trade war between the two largest economies of the world.
Households, businesses and the wider economy would be hit by the trade barriers, warned the chief economist of the Fund.
“Trade policy reflects politics and politics remain unsettled in several countries, posing further risks,” said Maurice Obstfeld.
In the latest episode of the trade war, trade tariffs on $60bn of US goods was imposed by China which targeted products from the states loyal to the US President Donald Trump such as liquefied natural gas.
China was warned in a recent tweet by Trump of not to try and meddle in the midterm US elections.
“There will be great and fast economic retaliation against China if our farmers, ranchers and/or industrial workers are targeted!” he said.
Last month, US tariffs on $200bn of Chinese imports was put into effect.
In July the IMF had forecast 3.9 per cent growth for the global economy for 2018 and 2019 which was later downgraded at 3.7% for both the years.
Risks to the short-term outlook had “shifted to the downside”, the Fund said.
Economic disturbance in a number of emerging market economies and a general slowdown in expansion for the eurozone also reflect the Funds downgrades of the global economic growth.
The Fund also expects that 2019 would be the sixth consecutive year of recession for Venezuela whose economy is already in tatters. Experts predict the rate of inflation of the country to reach ten million per cent in 2019.
There are forecast of shrinkage of the Argentine economy as well in 2018 and 2019 even as the country accepted an IMF bailout for its tottering economy.
Both the US and China are expected to see the true impact of the trade tariffs in 2019 after the waning out of the positive effects of tax cuts on the US economy by President Trump.
Unless there was a concerted effort by global leaders to enhance living standards, improve education and reduce inequality, the world would become a “poorer and more dangerous place”, Obstfeld said.
There would likely be a risk of a permanent hit on the world economy if the threat of imposing a 25 per cent import tariffs on cars was actually put into practice by the US, warned the IMF and said that the added sources of hindrance to global economic development would be the global tariffs which would impact business confidence, investment and costs of borrowing.
The Fund further warned that a here there would be a very significant hit on the US economy in a worst case scenario, while the growth in the Chinese economy would fall from the current prediction of 6.2 per cent to below 5 per cent in 2019.
(Adapted from BBC.com)