US-China trade war taking its toll: IMF

The goal should be to resolve these fractures, says International Monetary Fund's Kristalina Georgieva, and in a world of countries so interconnected, it must be done in a coordinated manner.

Washington:The new managing director of the International Monetary Fund, Kristalina Georgieva, on Tuesday said that the trade war between the United States and China is taking its toll on the world's economic activity in general, and on the manufacturing sector in particular.

As the global economy is witnessing "synchronized slowdown", the effect is "more pronounced" this year in some of the largest emerging market economies like India, said the new International Monetary Fund (IMF) managing director, Kristalina Georgieva.

"We have spoken in the past about the dangers of trade disputes. Now, we see that they are taking a toll," Georgieva said in her first speech since she became head of the IMF, media reported.

The Bulgarian economist who has succeeded in that position Christine Lagarde, who left to become president of the European Central Bank, said that global trade growth has come to a near standstill.

"In part because of the trade tensions, worldwide manufacturing activity and investment have weakened substantially," she said, noting that services and consumption could soon be at risk because 'the fractures are spreading'.

The IMF had cut its projection for India's economic growth by 0.3 percentage points to 7 per cent for the fiscal year 2019-20 owing to the "weaker-than-expected outlook" for the domestic demand.

The new IMF head said that trade disputes have now affected multiple countries, as are other critical situations like Brexit.

She warned that due to the world's interconnected economies, many countries will soon feel the impact.

"Even if growth picks up in 2020," Georgieva said, "The current rifts could lead to changes that last a generation, such as broken supply chains and siloed trade sectors," she added.

"Everyone loses in a trade war," she said, adding that the cumulative effect of the current trade conflicts means a loss of around $700 billion in 2020, or around 0.8 per cent of world GDP, an amount equal to the entire economy of Switzerland.

The goal should be to resolve these fractures, she said, and in a world of countries so interconnected, it must be done in a coordinated manner: "The key is to improve the system, not abandon it."

In her address, Georgieva came out in favour of a more modern system of global trade to knock down the "'digital Berlin Wall' that forces countries to choose between technology systems."

"In 2019, we expect slower growth in nearly 90 per cent of the world. The global economy is now in a synchronized slowdown," Georgieva warned.