According to the updated World Economic Outlook by the International Monetary Fund (IMF), there will be a 3.7 percent global growth in both 2018 and 2019, lower than the previous prediction in July, which forecast a 3.9 percent growth in both years.
Chen Jiahe, chief strategist at Cinda Securities in Shanghai, said the world is "freaked out" about heightened trade frictions and increased isolationism in 2018. Chen said the modern world economy is built on free trade and cooperation between countries.
For instance, Americans produce clothes and shoes, and some parts of Apple's mobile phones. Germans and Japanese produce machinery and Australians produce agricultural products.
Capitalizing on the advantages of some specific areas, a wise country is able to maximize its interests in the global industrial chain. It will in turn bring benefits to the whole world. The trade war, however, deprives countries of chances to play their proper roles in the global industrial chain.
On the contrary, they have to do everything themselves, which means a huge reduction in efficiency. As a result, some countries have no alternative but to take on extra work that causes a waste of time and money, Chen said.
Obviously, the IMF has to be pessimistic about the global economic climate.
According to a statement released by China's Minister of Finance, China will adopt an expansionary fiscal policy in an effort to minimize the adverse effects of the trade war. Chen thought highly of the fiscal policy, saying the adjustment has come at the right time.
Admittedly, China's main economic pillars are exports and investment, as Chen said. China is now transforming into a consumption-driven economy, where the government needs people to consume. Meanwhile, companies have to be able to invest in new goods and technology. Both of these require the government to take less of their money.
