World Economy

Trade war hit to global economy could be as big as the entire economy of Switzerland, new IMF director says

Key Points
  • By 2020, tariffs already imposed or announced would shrink global GDP by 0.8%, International Monetary Fund Managing Director Kristalina Georgieva warned.
  • "That is equivalent to the whole economy of Switzerland," Georgieva said.
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IMF's Georgieva: US-China tariffs could equal Switzerland's economy by 2020

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, Kristalina Georgieva, managing director of the International Monetary Fund, 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 not 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," Georgieva said. "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 more than 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," Georgieva said.

Georgieva succeeded former IMF Managing Director Christine Lagarde, who will become head of the European Central Bank.