Don’t miss the latest developments in business and finance.
Home / Economy / News / US, China trade war will push world towards recession, says Morgan Stanley
US, China trade war will push world towards recession, says Morgan Stanley
Reserve cut US interest rates back to zero within a year if the world economy heads to recession, says Morgan Stanley.
Premium
<a href="http://www.shutterstock.com/pic-105189368/stock-photo-stocks-price-in-downtrend-mode-indicates-global-economy-enter-recession.html" target="_blank">Image</a> via Shutterstock
A collapse of US-China trade talks and hike in tariffs on Chinese goods would push the world economy towards recession and see the Federal Reserve cut US interest rates back to zero within a year, analysts at Morgan Stanley said on Monday.
While a temporary escalation of trade tensions could be navigated without much damage at all, a lasting breakdown would inflict serious pain.
"If talks stall, no deal is agreed upon and the U.S. imposes 25% tariffs on the remaining US$300 billion of imports from China, we see the global economy heading towards recession," the bank's analysts said in a note.
In response, the Fed would cut rates all the way back to zero by spring 2020 while 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 they added.
"But, a reactive policy response and the usual lags of policy transmission would mean that we might not be able to avert the tightening of financial conditions and a full-blown global recession."
A global recession is defined by growth dipping below the 2.5% a year threshold.
To read the full story, Subscribe Now at just Rs 249 a month