June 10, 2019

World Bank, IMF Warn Of Trade War’s Impact On Global Growth

As The Wall Street Journal (subscription required) reported last week, the World Bank has cut its estimate for global growth for 2019 to 2.6 percent from the 2.9 percent growth it predicted just this past January. Reduced trade was one of the primary factors behind the decision. (The World Bank expects world trade to expand just 2.6 percent this year, its lowest level since the Great Recession and down from its January forecast of 3.6 percent.)

World Bank President David Malpass said, “There’s been a tumble in business confidence, a deepening slowdown in global trade, and sluggish investment in emerging and developing economies … This is worrisome because subdued investment weakens the foundations for sustained growth.”

The United States economy is expected to grow 2.5 percent this year while the Chinese economy is expected to expand 6.2 percent, the bank said. The Journal noted the forecast did not incorporate the effects of the U.S. threat to apply 25 percent tariffs to an additional $300 billion in Chinese goods, which could begin later in June.

The International Monetary Fund (IMF) also said last week that the U.S. economic expansion, which is about to be the longest ever recorded, risks being knocked off course by a further escalation in trade conflicts with other nations.

The IMF’s annual review for the United States warned, “A deepening of ongoing trade disputes or an abrupt reversal of the recent ebullient financial market conditions represent material risks to the U.S. economy … Rather than expanding tariff and non-tariff barriers, the U.S. and its trading partners should work constructively to better address distortions in the trading system.” The IMF estimated current and threatened U.S.-China tariffs could cut 2020 global gross domestic product by 0.5 percent, or $455 billion.