'Trade war may slow down 90% of world economy in 2019'

The International Monetary Fund (IMF) Wednesday warned 90% of the world economies, including India, could slow down in 2019 as trade tensions between US and China had weakened manufacturing activities and investments substantially and there was a serious risk that services and consumption could soon be affected.

“The slowdown in emerging economies like India and Brazil could be more pronounced this year,” Kristalina Georgieva said in her first speech as Managing Director of the International Monetary Fund ahead of IMF-World Bank autumn meeting in Washington next week.

“Global trade growth has come to a near standstill,” she added.

"For the global economy, the cumulative effect of trade conflicts could mean a loss of around $700 billion by 2020, or about 0.8%, which is approximately the size of Switzerland’s entire economy,” she said, urging countries to be ready to respond in unison with cash infusions.

For emerging market economies, she warned that the low interest rates were prompting investors to search for higher yields, which could leave many of them exposed to a sudden reversal of capital flows. Hence, she said, these countries must deploy fiscal firepower as low interest rates may have given policymakers additional money to spend.

“So we need macroprudential tools. And we can use new approaches to better manage debt, reduce financial booms and busts, and contain volatility. But we should state one thing very clearly. Monetary and financial policies cannot do the job alone. Fiscal policy must play a central role,” Georgieva said.

She said the world economy has shifted from a synchronized upswing to a synchronized slowdown after the trade tensions continued to take a toll. US President Donald Trump has so far imposed tariff on $360 billion of Chinese goods and plans to tax more.

According to Georgieva even if economic growth picked up in 2020, the current rift between US and China could lead to changes that last a generation. US-China trade war has broken supply chains as companies that once manufactured products in China are moving away to other destinations to avoid tariffs. It has also led to a tariff war among other countries of the globe, including India.