The annual meeting of the International Monetary Fund (IMF) and the World Bank (WB) began in Bali island, Indonesia, on October 8. (Photo: IMF)

The US-China trade war could reduce Asia's gross domestic product by 0.9% over the next two years, the International Monetary Fund said on Friday at the IMF-WB annual meeting in Bali, Indonesia. The IMF called on regional policy makers to liberate markets to make up for export decline. It predicted a gloomy market trend in emerging economies if the US Federal Reserve System (FED) and major central banks tighten monetary policies faster than expected.

According to the IMF report, rising protectionism, trade tensions, and political and policy changes could lead to tighter financial conditions. IMF Managing Director Christine Lagarde warned of worsened chaos in emerging economies, weaker capital flow, higher interest rates, and financial volatility in Asia. Although the IMF maintained its growth forecast for Asia at 5.6% this year, it cut its 2019 growth forecast for Asia by 0.2% from its April outlook, to 5.4%. The IMF said the US-China trade war not only takes a toll on their GDP but also affects other countries in Asia which export goods to China via the global value chains. The trade tensions could weaken trust, hurt the financial markets, disrupt the supply chains, and hinder investment and trade of Asia. But the IMF held that short-term stimulation measures may help weather adverse impacts and called on policy makers to liberalize their markets, particularly the service market.