The International Monetary Fund (IMF) says that US President Donald Trump’s tariffs have increased global financial stability risks.
This warning was part of the IMF’s Global Financial Stability Report released on Tuesday, as world financial leaders meet in Washington to discuss the uncertainty caused by the tariff policies.
The IMF pointed out that Trump’s tariff rate surged past levels reached during the Great Depression, which saw tariffs rise as high as 60 percent during one of the worst economic periods in modern history, a downturn that led to more than 12 million Americans losing their jobs.
Global ripple effect
The global ripple effect took the spotlight in the IMF’s report. “Global financial stability risks have increased significantly, driven by tighter global financial conditions and heightened economic uncertainty,” the IMF said.
The fund projects a slump in US economic growth at 1. 8 percent for the year — a downturn from its previous forecast of 2. 7 percent and down a full percentage point from this time last year.
China is also forecast to grow more slowly because of imposed US tariffs, looming additional tariffs on goods including pharmaceuticals, and Beijing’s reciprocal tariffs on US goods. The IMF now expects it will expand 4 percent in 2025, which is more than a half-point decrease from previous forecasts.
In Europe, the IMF forecasts that the 20-country eurozone will see 0. 8 percent growth this year and 1. 2 percent in 2026. The new report is a 0. 2 percent decline from its forecast at the beginning of the year.
The IMF also forecasts a decrease in Mexico for the year, with growth falling by 0. 3 percent for 2025. But it expects that it will rebound next year with 1. 4 percent growth. Across Latin America and the Caribbean, the organisation of 191 member nations is expecting a 1. 4 percent decrease in growth from its 2024 forecasts, but it does expect growth to bounce back in 2026.
“I don’t recall another instance in my professional life where a single act by a president or prime minister has resulted in such a sudden downgrade in growth in a matter of weeks,” Stuart Mackintosh, executive director of the financial think-tank Group of Thirty, told Al Jazeera.
The bond markets recently surged in the US earlier this month after Trump’s tariffs went into effect. As a result, interest rates went up in other countries around the globe, causing borrowing to become more expensive in other countries, too.
“Emerging market economies already facing the highest real financing costs in a decade may now need to refinance their debt and fund fiscal spending at higher costs,” the IMF said.
The IMF also said that other geopolitical risks such as military conflicts could further spur uncertainty.
An economist consensus
The concerns echo those of other prominent economists around the globe who expect a downturn. Goldman Sachs said it expects “very low US growth of 0. 5 percent” and said chances of a recession next year are 45 percent, according to the investment bank’s “tariff induced recession risk” report released on Monday.
Earlier this month, a survey of macroeconomic forecasts conducted by the National Association for Business Economics showed that more than half of respondents believe the probability of a recession in 2025 could be as high as 49 percent. Economists at JPMorgan now believe that the chances of recession are 60 percent.
“The increased likelihood of a global recession and the likelihood of an American recession is up. It’s gone up. We have to deal with that. When you think about the consensus position of US economists, that shifted dramatically,” Mackintosh added.
“In the fall of last year, a majority of US business economists thought that there would be no recession this year. Indeed, most consensus positions viewed the US economy as the strongest advanced economy in the world, and that could only get better. Unfortunately, after ‘Liberation Day’, they got worse. ”
The US Federal Reserve has also forecast that growth will weaken this year, to 1. 7 percent. This comes as the president has pushed for the central bank to cut interest rates, which Fed Chair Jerome Powell has refused to do. Last week, Trump said that Powell’s exit can’t come soon enough and asserted that if he asked Powell to leave the role, he would. Powell has continually said that he would serve out the remainder of his term, which ends in May 2026.
Source: Aljazeera
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