The IMF has cautioned that escalating trade tensions, as well as seismic shifts in the worldwide trading environment, are expected to lead to downward revisions to its growth projection. However, spending no global recession “does not expect,” the IMF Managing Director Kristalina Georgieva said on Thursday.
Ahead of the spring meetings of the IMF and World Bank in Washington next week, Ms. Georgieva also discussed growth challenges as a seismic shift is testing many economies in the global trading system. The charting of resultant trade policy uncertainty and extremely high volatility in financial markets is described as “off the charts.” “Trade policy uncertainty is running red hot, “The charting of resultant trade policy uncertainty and extremely high volatility in financial markets is described as “off the charts.”
In comments at the IMF headquarters, she said that disrupting our new growth forecast, which will reflect more significant markdowns but not fall into recession, has a cost.
Impact of Trade Measures
Most of the spring meetings of the IMF and World Bank, however, should be dedicated to what tariffs the U.S. has just enacted and the instability in financial markets that has ensued. Ms. Georgieva also said that the significant uncertainty increases the threat of stress in financial markets. A current shift within U.S. Treasury yield curves recently foretold of some doom, “If the performance of monetary locations declines, all of us lose,” she said.
Underlying Economic Strengths
On the other hand, Ms. Georgieva also said that the planet’s real-world economy seems to be running reasonably well, encapsulating a strong job market and a robust banking sector. However, she cautioned that ever-worse sentiments and fears of an impending recession could restrain activity.
“Realities do not matter as much as perceptions do, which was an important lesson I learned during crisis times,” she said. If sentiment turns, however, then such a situation can be highly damaging to the well-being of the economy.
Updates on Trade Policy
A new round of tariffs has extensively reconfigured the global trading system. A 10% U.S. tariff on all goods from all countries and significant tariffs levied on individual countries have spread. Those steps have been put on hold to give talks time to play out over the next 90 days, but China, the EU, and other countries have since detailed plans for retaliation.
Other Key Insights
In its January forecast, the IMF projected 3.3% global growth for 2025 and 2026. Kearns said the updated World Economic Outlook, which will be released Tuesday, will contain further details on those revisions.
While she did not specify the expected size of the revisions, she cautioned that “in case this prolonged uncertainty remains,” it “will be costly to entrepreneurs and consumers ” and that the impact of reforms on the trade regime will be “huge.”
On inflation, she said the IMF is yet to observe a significant general upward or downward movement. Tariffs may push up prices for consumers and producers, but a slowdown in spending driven by uncertainty may keep inflation lower. However, she said the new IMF figures meant even more inflation for some of those countries.
