Kpmg macro models the entire global economy split

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KPMG-MACRO models the entire global economy split into more than 60 separate economies. All the major economies, including Australia, are separately modelled. The model is based on a powerful combination of real data and theory. Economic theory strongly conditions the specification of long-run behaviour. Short-term dynamics are more heavily driven by data and are designed to capture disequilibrium in financial markets, labour markets and markets for goods and services. Modelling results The results are presented as percentage deviations from a base case of no trade war. For example, a result of -0.2% means that GDP in that year would be an estimated 0.2 percentage points lower than if no trade war had occurred. Scenario 1: Limited escalation, no contagion Chart 1 summarises the modelling results for Scenario 1 – a limited escalation of the current trade war between the US and China, with tariffs applied to no more than US$200 billion of goods from either country, that does not spread to other countries. The modelling results A trade war that is limited to the announced and planned tariff increases between the two countries would have only a small effect on the GDP of those countries and an even smaller effect on other countries. China’s GDP would be up to 0.61% smaller in Year 4 than it otherwise would have been, while the US would suffer damage to its GDP of up to 0.58%. Australia’s GDP is projected to be 0.29% lower in Year 5 owing to the trade war. The present value of Australia’s real GDP losses over the next decade is estimated at A$36 billion. The EU’s estimated GDP loss peaks at 0.22% in Year 4, before recovering to around half that loss on an ongoing basis. World GDP is about 0.4% lower in Year 4, recovering to be just over 0.1% lower after 10 years. Chart 1: Impact of a limited US-China trade war, no contagion
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