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The IMF has warned that jitters over Donald Trump’s threat to impose trade tariffs are driving up long-term borrowing costs and adding to the pressures the global economy will face in 2025.
Speaking to reporters on Friday in Washington, the director of the IMF Kristalina Georgieva said global economic policy faced “fairly large 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 fallen.
Donald Trump was returned to the White House vowing to apply high tariffs on US imports from his trading partners, including across-the-board tariffs of 20 percent on all goods.
He also threatened to hit Canada and Mexico — now the US’s biggest trading partner — with tariffs of 25 percent and apply an additional 10 percent to Chinese goods, potentially heralding the start of a new era of global trade wars.
America’s allies are nervously waiting to see if the president-elect will have the appetite to immediately implement blanket tariffs when he is inaugurated as president on January 20, or if he will back off and take a more measured approach that hits certain sectors.
Along with trade policy, Georgieva said there is “great global interest” in the incoming Trump administration’s broader economic policy choices, including taxes and its deregulatory agenda.
The impact of trade policy 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 upcoming World Economic Outlook 2025, to be released next week, showing global growth “holding steady”.
However, within the overall picture, US economic growth was “a bit better than we expected”, while the EU was “somewhat of a drag”, 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 face the legacy of high borrowing during Covid and will need to implement fiscal consolidation to bring public debt “on a more sustainable path”, she said.
“Fiscal policy has proven to be very difficult to act quickly, given public sentiment, and that brings us to what our main challenge in the fund is – which is to solve this low-growth, high-debt conundrum,” she said.
She added that with US inflation moving toward the Federal Reserve’s target and new data showing a strong labor market, the Fed may wait for more data before cutting rates further.
