The trade war has significantly weakened the global economy

Abstract

According to a model-based assessment by the Bank of Finland, tariff increases currently in place will slow global GDP growth by around 0.7 of a percentage point. The trade dispute has already diminished trade flows between the United States and China. The growth of uncertainty has been reflected in investment sentiment, and manufacturing purchasing manager indices have fallen globally. News updates on the current negotiation situation have caused volatility in share prices and securities market risk premia, but significant disruptions on the financial markets have so far been avoided. In an adverse scenario calculated by the Bank of Finland, further escalation of the trade war and subsequent widespread disruptions to the financial markets would slow global GDP growth by a further two percentage points.