The IMF and the global economy amid trade war

Trade war between China and United States

The trade war between China and the United States continues to monopolize the headlines. As expected, the International Monetary Fund (IMF) has offered some statements through its new Managing Director, Kristalina Georgieva. She said that this issue was “taking its toll” on the global economy. This is stressed in recent indicators especially in the manufacturing sector.

The Bulgarian economist, who replaces Christine Lagarde (the new ECB president), has also affirmed that economic growth “has stopped almost completely”. There are worrying signs that this growth slowdown will deepen even further. “Partly due to commercial tensions, global manufacturing activity and investment have weakened substantially. There is a serious risk that services and consumption may soon be affected,” Georgieva said.

International Monetary Funds and China

Given China is their primary customer, the IMF pointed out that the trade war has extended its grasp to several countries. The managing director also stated that the services and consumption sector is on the cusp of suffering the consequences of this trade dispute.

This is precisely what IMF has been delivering warnings about for several months now. It also highlighted that losses could exceed 0.8% of GDP worldwide, which is similar to what Switzerland generates. “Our goal should be to solve these fractures: our world is intertwined, so our responses must be coordinated,” she said.

Brexit and the global economy

Another critical issue that Georgieva spoke of is “Brexit”. This is due to the uncertainty created by the idea of the EU-Britain divorce being resolved with a ‘no deal’. On top of this, she is pessimistic about the growth rate of the global economy. She anticipates that in 2019, only 10% of the global economy will experience regular growth. She warned, “The global economy is now in a synchronized slowdown”.

What the IMF has concluded is that the dependencies between economies worldwide is counterproductive. This is due to the domino effect that arises around the consequences of trade uncertainty. In fact, the IMF pointed out that these changes in global dynamics could last an entire generation. This would come as a result of not taking concrete measures that can mitigate the splinters.

Another worrying aspect has been the poor performance of the power countries, with the exception of the United States. Some of these have been Germany, Australia, and China. This will undoubtedly continue to trigger the risk-off sentiment around traders.