1. Money matters
July 17, 2018

Significant economic downturn among effects of a trade war, warns IMF

By Lucy Ingham

The International Monetary Fund (IMF) has joined the growing number of organisations warning that a significant economic downturn could be among the effects of a trade war.

In the latest update to the IMF World Economic Outlook, the organisation said that the current trade war bluster threatened to trigger a decline in global output.

“Our modelling suggests that if current trade policy threats are realized and business confidence falls as a result, global output would be about point five percent below current projections by 2020,” Research Department Director Maury Obstfeld told journalists in Washington, DC on Monday.

“That’s half a percentage point.”

Recession among possible effects of a trade war

Obstfeld was keen to stress that such a significant economic downturn was a worst-case scenario. He also highlighted how difficult it was to accurately predict the impacts of complex political manoeuvring.

However, he also said that the best way to avoid the effects of a trade war was to avoid a trade war altogether.

“The most positive and durable response to trade tensions would be negotiations with a broad range of trade partners that would open up China even more especially to imports,” said Obstfeld.

“The tragedy of the current set of tensions is that it risks creating a very bad outcome compared to what we could achieve if countries were to use multilateral mechanisms including the WTO.

“Think about where are the weaknesses that would prevent them from addressing the tensions and how they could repair those.”

Growing concerns around trade war

The IMF joins a growing number of voices warning that a global recession or at least an economic downturn could occur as a result of a trade war.

Last week Nigel Green, CEO of deVere Group, warned the trade war could cause a “chain reaction of negative events around the world”.

Prior to that, the Annual Economic Report 2018 by Bank for International Settlements (BIS) warned that protectionist policies could damage the global economy, increasing the potential for a recession.

Topics in this article: