The International Monetary Fund (IMF) warned on Tuesday, 15th October that the trade war spiking between the United States and China will lead to a global slowdown similar to the one witnessed in 2008-09. The IMF also said that if the situation persisted, the slowdown would be worse than the sub-prime crisis-fuelled meltdown of 2008-09.
The IMF revised its global Gross Domestic Product (GDP) estimations in its World Economic Outlook forecasts. The World Economic Outlook’s GDP forecast for the world for 2019 has been slashed to around three per cent from its July estimations of around 3.2 per cent.
Gita Gopinath, the Monetary Fund’s chief economist noted in a statement, as quoted by Reuters, “The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods”.
According to IMF’s calculations, if the threatened levies were to be imposed by the United States and China, the economic output of the world could come down by as much as 0.8 per cent. This would be equivalent to a monetary loss of about $700 billion.
The IMF’s estimations for Chinese GDP predict a loss of about two per cent in the immediate short-term and about one per cent in the long run. For the United States, the IMF’s predictions estimate a GDP loss of about 0.6 per cent both immediately and in the long run. The calculations for the immediate time-line are along the lines of the tariffs currently in operation.