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The International Monetary Fund has warned that concerns surrounding Donald Trump's threat to impose trade tariffs are driving up borrowing costs in the long term and will add to the pressures facing the global economy in 2025.
Speaking to reporters in Washington on Friday, the Director General of the International Monetary Fund said Kristalina Georgieva He said global economic policy faces “a lot of uncertainty” in 2025, especially regarding trade policy of the world's largest economy.
“This uncertainty is expressed globally through rising long-term interest rates,” Georgieva said, although she noted lower short-term interest rates.
Donald Trump has returned to the White House promising to implement steep tariffs on imports into the United States from its trading partners, including a blanket 20 percent tariff on all goods.
He also threatened to hit Canada and Mexico – now the US's largest trading partner – with 25 per cent tariffs, and apply an additional 10 per cent tariff on Chinese goods, which could herald the beginning of a new era of global trade wars.
US allies are waiting nervously to see whether the president-elect has the desire to implement sweeping tariffs immediately when he is inaugurated on January 20, or whether he will delay and take a more moderate approach that hits specific sectors.
Beyond trade policy, Georgieva said there was “significant interest globally” in the incoming Trump administration's broader economic policy options, including its tax and regulatory agenda.
Georgieva said the effects of trade policy will be particularly felt in countries “more integrated into the global supply chain,” as well as in Asia.
Georgieva reviewed some of the IMF's upcoming forecasts for the global economy for 2025, which will be published next week, suggesting global growth is “flat.”
However, within the overall picture, US economic growth was “a little better than we expected,” while the European Union was “somewhat faltering,” she said.
She added that China faced deflationary pressures and challenges in domestic demand, while low-income countries were “in a position where any new shock could have a completely negative impact.”
In 2025, countries will still face the legacy of high borrowing during Covid, and will need to implement fiscal consolidation to put public debt “on a more sustainable path,” she said.
“It has proven very difficult for fiscal policy to act quickly, given public sentiment, and this brings us to what is our main challenge at the Fund – which is to address this low growth and high debt dilemma,” she said.
She added that with US inflation moving towards the Fed's target and new data showing a strong jobs market, the Fed could wait for more data before making further interest rate cuts.
