How The World Economy Is Reacting To The Trade War

As the trade war has escalated in recent months, new effects are being felt as far away as Iceland.

Leaders of central banks and finance ministers had an opportunity to share their stories of suffering economies last week. The International Monetary Fund (IMF) and World Bank held meetings in Washington, where the mood was rather somber. According to Reuters, some who attended reportedly commented on how far US trade policy has shifted since the country co-founded the IMF in the 1940s.

Among the effects that the trade war is having, global growth is expected to slow down to 3% worldwide for 2019. This is the slowest growth the global economy has seen in a decade. However, the economic pain won’t be spread equally, as the US still remains the least affected of all the G20 countries. This is in part because of the massive domestic consumer spending base in the US. However, European countries have been and are expected to continue to be hammered by the fallout of the trade war.

According to European Union’s Economic and Financial Affairs Commissioner Pierre Moscovici, the pain is being felt the most in the European countries with more open trade that are reliant on exports. Of major global economies, Germany relies the most on exports, which make up about 40% of the country’s GDP. German trade group BGA previously forecasted growth in German exports to 1.5%, but recently revised their projections down to 0.5%. Many companies have already taken notice and have scaled back their investment plans.

Even Iceland is now feeling the effects of the trade war. “We have become dependent on tourism,” said Ásgeir Jónsson, governor of Iceland’s central bank. Tourism in Iceland has skyrocketed in recent years, multiplying by five since the last recession. Now, amid the trade war tourism has fallen by 15.6% since the summer of 2018.

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