A man sits by the waterfront with the skyline buildings across Victoria Harbor in Hong Kong, China October 24, 2023. REUTERS/Tyrone Siu
Waves of tariffs announced by the administration of US President Donald Trump and policy uncertainties are expected to stymie global growth just as the world economy emerged from major shocks such as the fallout from the Covid-19 pandemic and Russia’s full-scale invasion of Ukraine, the International Monetary Fund (IMF) said.
The IMF yesterday slashed its growth forecasts for the United States, China and most countries, citing the impact of US tariffs now at 100-year highs and warning that rising trade tensions would further slow growth.
The IMF released an update to its World Economic Outlook compiled in just 10 days after Trump announced universal tariffs on nearly all trading partners and higher rates – currently suspended – on many countries.
It cut its forecast for global growth by 0.5 percentage point to 2.8 per cent for 2025, and by 0.3 percentage point to 3pc from its January forecast that growth would reach 3.3pc in both years.
It said inflation was expected to decline more slowly than expected in January, given the impact of tariffs, reaching 4.3pc in 2025 and 3.6pc in 2026, with ‘notable’ upward revisions for the US and other advanced economies.
The IMF called the report a ‘reference forecast’ based on developments through April 4, citing the extreme complexity and fluidity of the current moment.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas said.
The IMF said the swift escalation of trade tensions and ‘extremely high levels’ of uncertainty about future policies would have a significant impact on global economic activity.
“It’s quite significant and it’s hitting all the regions of the world. We’re seeing lower growth in the US, lower growth in the euro area, lower growth in China, lower growth in other parts of the world,” Gourinchas told Reuters in an interview.
“If we get an escalation of trade tensions between the US and other countries, that will fuel additional uncertainty, that will create additional financial market volatility, that will tighten financial conditions,” he said, adding the bundled effect would further lower global growth prospects.
Weaker growth prospects had already lowered demand for the dollar, but the adjustment in currency markets and portfolio rebalancing seen to date had been orderly, he said.
“We are not seeing a stampede or a run to the exits,” Gourinchas said. “We’re not concerned at this stage about the resilience of the international monetary system. It would take something much bigger than this.”
Sharply increased tariffs between the US and China will result in much lower bilateral trade between the world’s two largest economies, Gourinchas said, adding, “That is weighing down on global trade growth.”
