The implications of the U.S.-China trade war could wipe out a portion of the global economy the size of Switzerland by next year, International Monetary Fund managing director Kristalina Georgieva warned.
“By 2020, tariffs already imposed or announced would shrink global GDP by 0.8%. That is equivalent to the whole economy of Switzerland,” Georgieva told CNBC’s Geoff Cutmore on Thursday.
The U.S. and China have been entangled in a trade war for more than 18 months, with the world’s two largest economies engaging in many rounds of talks and slapping tariffs on billions of dollars of each other’s goods. Last week, President Donald Trump said the two countries have reached a “very substantial phase one deal,” but doubts persist as the details have no been announced or signed.
“The interest in agreement is motivated by a very simple, common objective, [it is] helpful for the economies of both countries,” said Georgieva. “More helpful to China. China is more open towards the U.S. and more dependent on the trade relationships with U.S., but also negative for the U.S.”
The IMF said Tuesday in its latest World Economic Outlook that its projections show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from the U.S.-China trade war. This is the lowest forecast since the financial crisis over a decade ago.
“So the motivation to find a pathway to a deal comes from the fact that the world economy is slowing down, we are in a synchronized slowdown,” said Georgieva.
Georgieva was nominated by the European Union to replace former IMF director Christine Lagarde, who will succeed Mario Draghi as the head of the European Central Bank.