The global economy could contract by a size equivalent to that of the French and German economies combined in the event of a full-blown trade war between the world's major economies, the International Monetary Fund (IMF) has told the BBC.
This comes as concerns grow over Donald Trump's possible re-election.
Trump has said he is considering introducing a universal tax or tariff of up to 20% on all imports into the United States, while the European Union is already considering retaliation if Washington moves forward with the new sample.
Last week, Trump declared that “tariffs is the most beautiful word in the dictionary,” and global markets and finance ministers are now starting to take seriously the prospect of him implementing these ideas.
IMF Deputy Managing Director Gita Gopinath said the Fund was not yet able to assess the details of Trump's trade plans, but believes that “if you put in place very serious decoupling and reliance on large-scale tariffs, you could end up with a loss in global GDP close to that of global GDP. at 7%.
“These are very high figures, 7% represents a loss for the French and German economies. This is the extent of the loss that would be,” she continued.
Ms. Gopinath also said that tariffs worth hundreds of billions of dollars “are very different from the world we have lived in over the last two or three decades.”
The IMF deputy director said another of the Fund's main messages at its annual meetings was to warn of soaring global public debt.
She said the current period of steady economic growth was a “time to replenish your fiscal reserves” because “this will not be the last crisis.” There will be additional shocks. You will need budgetary space to respond. And now is the time to do it.”
Ms Gopinath said there was also a need to “look on the bright side” with a resilient global economy after “very hard hits”.
She suggested that the global economy had experienced a soft landing following multiple crises.
“Past experiences of reducing inflation have not translated into a soft landing. There has been a very sharp increase in unemployment. So it was a great success, and it turned out much better than many feared,” she said.
Ms Gopinath added that it was a “good victory” for central banks around the world that inflation had fallen without high unemployment. But now is the time to rebuild resilience in a fragile world.
