A full-blown US-China trade war will push the world economy toward recession and see the Federal Reserve cut interest rates back to zero within a year, analysts at Morgan Stanley said on Monday, according to Reuters.
Key points
If talks stall, no deal is agreed upon and the U.S. imposes 25% tariffs on the remaining circa $300 billion of imports from China, we see the global economy heading towards recession.
In response, the Fed would cut interest rates and China would scale up its fiscal stimulus to 3.5% of GDP (equivalent to around $500 billion) and its broad credit growth target to 14-15% a year.
Our base case is that the escalation is temporary, but we would readily admit that the uncertainty is high with regard to how trade talks could evolve.
The impact on global growth is non-linear – the risks are firmly skewed to the downside and the window for resolution is narrowing.
Share
