The Trade War’s ‘Second Wave’ Will Be More Painful, Says Indonesia Finance Minister

(Bloomberg) --

The global economy could be hit by a second wave of damage from the U.S.-China trade war -- and it will be much more severe than the first, Indonesia’s finance minister said.

The outlook for global growth already was cut amid the dispute between the world’s two biggest economies, but the escalation in hostilities since then has “created a point of no return,” Sri Mulyani Indrawati said in an interview Tuesday. Damage from this second wave “is not quantifiable at this moment” but will be significant, and could thrust the world into “a totally uncertain era.”

“No one now has the trust or belief about how international disputes must and should be settled,” Indrawati said. “I think this secondary damage is going to be much, much more long lasting beyond a certain political regime.”

Policy Jumble

Since the International Monetary Fund cut its global growth forecast in July, tensions between the U.S. and China have ratcheted up and a deal appears more distant. Volatile markets, together with the brittle state of the world economy and new flash points such as Hong Kong, have fed fears of a global recession.

“This is something that needs to be addressed globally by all the leaders, regardless of their short-term interests,” Indrawati said. The type of coordinated policy response seen during the global financial crisis a decade ago could help counter the threat, she said, but right now “it seems like the world is heading in a direction that nobody wants.”

“The policy action is not coherent,” she said. “That’s creating very weak confidence among many economic players in the world in the ability of leaders or decision makers to actually avert or avoid this recession.”

President Joko Widodo announced next year’s budget on Aug. 16, projecting Indonesia’s economy to grow 5.3% next year. Since the assumptions underlying the budget were set, however, “the world’s economic condition has not improved, it has even worsened,” Indrawati said Wednesday.

To contact the reporters on this story: Karlis Salna in Jakarta at ksalna@bloomberg.net;Viriya Singgih in Jakarta at vsinggih@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net, Michael S. Arnold, Chris Bourke

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