The International Monetary Fund (IMF) said the world economy could contract by the size of the combined French and German economies, if there is a broad-based trade war between the world’s major economies.
It comes as concerns are escalating ahead of the possible reelection of Donald Trump.
Trump says he plans to introduce a universal tax or tariff of up to 20% on all imports into the US, while the European Union is already planning retaliation if Washington goes ahead with the new levy.
Last week, Trump said “tariff is the most beautiful word in the dictionary”, and global markets and finance ministers are now beginning to take seriously the prospect of him enacting the ideas.
IMF Deputy Managing Director Gita Gopinath said the Fund could not yet assess the specifics of Trump's trade plans, but thinks that “if you have some very serious decoupling and broad scale use of tariffs, you could end up with a loss to world GDP of close to 7%".
"These are very large numbers, 7% is basically losing the French and German economies. That's the size of the loss that would be," she continued.
Ms Gopinath also said tariffs worth hundreds of billions of dollars “is very different from the world we’ve lived in over the past two of three decades”.
The IMF’s deputy chief said another of the Fund’s main messages at its Annual Meetings was to warn on ballooning levels of global government debt.
She said the current period of steady economic growth was a “moment to rebuild your fiscal buffers” as “this will not be the last crisis. There will be additional shocks. You will need the fiscal space to respond. And now is the time to do it”.
Ms Gopinath said it was also necessary to “look at the bright side” with a resilient world economy after “some very tough knocks”.
She suggested the world economy had seen a soft landing from the multiple crises.
“Past experiences with bringing down inflation have not been with a soft landing. It was a big, big increase in unemployment. So that was a big hit, and it has turned out to be much better than many feared”, she said.
Ms Gopinath added that it was a “good win” for central banks everywhere that inflation has come down without high unemployment. But that now was the time to rebuild resilience in a fragile world.
Source: BBC
Bd-Pratidin English/ Afsar Munna
