quora No slower pace than the Financial Crisis of 2008-09
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No slower pace than the Financial Crisis of 2008-09

The IMF predicts that the US and China Trade war is going to shrink global growth to its slowest. The regulatory institution is the latest financial institution to voice its opinion on the trade war. While many experts have predicted that the Trade war will have adverse effects, not so many people were convinced.

No slower pace than the Financial Crisis of 2008-09

In what appears to be a protracted trade war that required immediate solving, the US and China are dragging the global economy into mad. The IMF is predicting that global economic growth is going to shrink even further if the situation is not rectified.

The global trade friction is weighing in heavy of the global economic outlook. According to the IMF, the 2019 global growth projections shrunk by 0.2% in September. September registered only 3% economic growth compared to 3.2% previously recorded in July this year.

Experts are dishing out pessimistic sentiments ahead of the IMF and World Bank meetings in Washington this week. IMF’s new managing director, Kristalina Georgieva, is a person in hot soup. Aside from inheriting a myriad of problems from the Fund’s previous administrations, the appointment comes at a critical point in time. Trade stagnation and political instability in the world’s emerging markets are some of the other problems facing this new appointee.

Further Gloom in 2020

The IMF further suggests in its report that should the trade war persist, 2020 will not be such a good year. The financial crisis lender predicts that global economic growth will shrink by a massive 0.8%. This figure represents about $700 billion worth of growth or even closer home, the entire economy of Switzerland.

A decline in the manufacturing industry is another contributing factor to the decline in economic growth. The US recently reported its first decline in manufacturing industry data in 35 months. Reduced global trade, high tariffs, and high profits are other factors the IMF attributes to the shrinking economic growth.

Choosing to offer some hope, however, the Fund also forecasts that the global economic growth will shoot to 3.4% in 2020. This optimism is supported by better performances of several economies, among them Saudi Arabia, Brazil, and Mexico. This forecast, though optimistic, is a tenth of a point lower than that of July.

The US and China Economies To Shrink

The Fund is also skeptical about a possible growth in the economies of either country engaged in the trade war. The IMF is predicting that China’s GDP output will fall by 2% in the near future. The US economy will shrink by 0.6%. This is if the ongoing stalemate drags any further.

The IMF has also come up with a model of what would happen if companies in the US, Euro region, and Japan reshored their production. The IMF predicts that this would reduce nominal imports by up to 10%. The institution said that the effect of this would be increased consumer prices reduced domestic demand. The overall effect of all these is that it would throttle the spread of technology in emerging markets, which are experiencing political turmoil.

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