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The IMF has warned that jitters surrounding Donald Trump’s threat to impose trade tariffs were driving up longer-term borrowing costs and would add to pressures facing the global economy in 2025.
Speaking to reporters in Washington on Friday, IMF managing director Kristalina Georgieva said global economic policy faced “quite a lot of uncertainty” in 2025, particularly around the trade policy of the world’s largest economy.
“That uncertainty is actually expressed globally through higher long-term interest rates,” Georgieva said, although she noted that short-term interest rates have gone down.
Donald Trump was swept back into the White House promising to apply steep tariffs to imports to the US from its trading partners, including a blanket 20 per cent tariffs on all goods.
He has also threatened to hit Canada and Mexico — now the US’s largest trading partner — with tariffs of 25 per cent, and apply an extra 10 per cent on to Chinese goods, potentially heralding the start of a new era of global trade wars.
US allies are nervously waiting to see whether the president-elect has the appetite to immediately apply the blanket tariffs when he is inaugurated as president on January 20, or whether he will hold off and take a more measured approach that hits specific sectors.
Along with trade policy, Georgieva said there was “keen interest globally” in the broader economic policy choices of the incoming Trump administration, including on taxes and its deregulatory agenda.
The trade policy impacts will be especially felt by countries that are “more integrated into the global supply chain”, Georgieva said, and in Asia.
Georgieva previewed some of the IMF’s forthcoming World Economic Outlook for 2025, to be published next week, indicating that global growth is “holding steady”.
However, within the overall picture, US economic growth was doing “quite a bit better than we expected”, while the EU was “somewhat stalling,” she said.
China faced deflationary pressures and domestic demand challenges, while low-income countries were “in a position where any new shock can affect them quite negatively,” she added.
In 2025, countries will still be facing the legacy of high borrowing during Covid, and would need to carry out fiscal consolidation to put public debt “on a more sustainable path”, she said.
“It has proven very difficult for fiscal policy to act promptly, given public sentiments, and that takes us to what is our main challenge at the fund — and it is tackling this low growth, high debt conundrum,” she said.
She added that as US inflation was moving towards the Federal Reserve’s target and new data showed a robust jobs market, the Fed could wait for more data before making further rate cuts.