(Reuters) – The exacerbation of trade tensions and the rapid development of global trade will lead to the downward revisions of the economic forecasts of the International Monetary Fund (IMF) but the organization is not anticipated by global recession, said its director Kristalina Georgieva on Thursday.
Kristalina Georgieva said that the economies of the various countries would be put to the test by the overhaul of the global trade system, caused in recent months by American customs duties and Chinese and European reprisals, which has caused “extraordinary” uncertainty in terms of commercial policy and extreme volatility on the financial markets.
“Disturbances have costs (…) Our growth prospects will include notable reductions but no recession,” she warned in prepared remarks, adding that the IMF anticipates an increase in inflation for certain countries.
Uncertainty also leads to risks for the financial markets, added the Bulgarian economist, adding that recent fluctuations in the yields of treasury bills should be considered a warning. “Everyone will suffer if financial conditions worsen,” she warned.
US President Donald Trump turned world trade by imposing a wave of new customs duties, including so-called “reciprocal” rights of 10% or more on the majority of countries, although they have been the subject of a 90-day moratorium in order to allow negotiations. China, the European Union (EU) and other countries have announced reprisal measures.
In January, the IMF declared to anticipate a global growth of 3.3% in 2025 and 3.3% also in 2026. On Tuesday, the organization will publish an updated version of its report on global economic prospects.
Speaking at the IMF’s headquarters in Washington, before the next meetings of the organization and the World Bank, which will take place next week, Kristalina Georgieva has not given details as to the expected revisions, but warned that an prolonged uncertainty would have heavy consequences.
She explained that trade tensions have been running for some time, but that they had now reached their climax. She urged countries to respond to “sudden and extremely fast changes” wisely.
“While the giants compete, the smallest countries are taken between two fires,” said Kristalina Georgieva. China, the EU and the United States were the three largest importers in the world, which leads to heavy repercussions for countries more exposed to the tightening of financial conditions, she deplored.
Protectionism prevents innovation
The increase in customs duties has a direct blow to growth, explained Kristalina Georgieva, adding that past experiences have shown that customs duties are paid by importers, who must accept lower profits, and by consumers, who face an increase in prices.
In large economies, they can also create conditions conducive to local investment and new jobs, but these effects are far from immediate.
“Protectionism erodes long-term productivity, particularly in small economies,” she said, warning that attempts to protect its competition industry were also harmful to entrepreneurship and innovation.
Kristalina Georgieva called on countries to continue to initiate economic and tax reforms while maintaining flexible and credible monetary policies, as well as solid supervision and regulation of the financial markets.
Emerging savings must preserve the flexibility of their exchange rates, and donor countries must better protect aid flows to low-income countries, she added.
It has also called for cooperation in an increasingly multipolar world, and has urged the largest economies to conclude a trade agreement that would keep accessibility and reverse the trend in order to reduce customs duties and non -tariff obstacles.
“We need a more resilient global economy, not a drift towards an increased division,” said Kristalina Georgieva.
“All countries, whether large or small, can and must do their share in order to strengthen the global economy in an era marked by severe and frequent shocks,” she concluded.
(Written by Andrea Shalal, Pauline Foret, edited by Augustin Turpin)
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