The International Monetary Fund (IMF) is warning of a significant slowdown in the global economy. This downturn is mainly due to the uncertainty caused by trade tariffs.
A Shaky Global Economy
The IMF’s new World Economic Outlook Report states that the global economy has recently stabilized after a rough patch. However, new risks are emerging, primarily from President Trump’s threatened high tariffs. This has forced the IMF to drastically lower its growth predictions compared to its January report.
Tariffs: The Main Culprit
The IMF expects the recent tariff increases and the resulting uncertainty to significantly slow global growth in the short term. They explain that tariffs act as a negative supply shock. Resources are diverted to less competitive goods, leading to lower productivity, reduced economic activity, and higher prices. In the long run, tariffs reduce competition, stifle innovation, and create opportunities for unfair business practices. For countries targeted by tariffs, it’s mostly a negative demand shock, driving customers away from their products. Only some countries might benefit from trade rerouting.
Impact on Global Trade
The IMF has lowered its global trade growth projection by 1.5%, but it does predict a slight recovery next year.