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Unease over Donald Trump’s threat to impose trade tariffs is pushing up long-term borrowing costs and will intensify pressures on the global economy in 2025, the International Monetary Fund warned.
International Monetary Fund Managing Director Kristalina Georgieva told reporters in Washington on Friday that global economic policy faces “considerable uncertainty” in 2025, especially around trade policy in the world’s largest economy. .
“This uncertainty is actually manifesting itself globally through rising long-term interest rates,” Georgieva said, although she noted that short-term rates have fallen.
Donald Trump returned to the White House promising to impose steep tariffs on imports from his trading partners to the United States, including a 20% tariff on all goods.
He has also threatened to impose 25% tariffs on Canada and Mexico, now the United States’ largest trading partners, and an additional 10% tariff on Chinese goods, which may herald the beginning of a new era of global trade wars.
U.S. allies are waiting nervously to see whether the president-elect is interested in imposing a package of tariffs immediately when he takes office on January 20, or whether he will delay and take a more cautious approach targeting specific industries.
Georgieva said that in addition to trade policy, there is “strong global interest in the incoming Trump administration’s broader economic policy options,” including taxation and its deregulatory agenda.
Georgieva said countries that are “more integrated into global supply chains” and those in Asia will especially feel the impact of trade policies.
Georgieva previewed part of the International Monetary Fund’s “World Economic Outlook 2025” to be released next week, showing that global growth “remains stable.”
However, looking at the overall picture, the U.S. economy is growing “much better than we expected,” while the EU is “a little stagnant,” she said.
China faces deflationary pressures and domestic demand challenges, while low-income countries “are in a position where any new shocks are likely to have quite a negative impact on them,” she added.
She said that in 2025, countries will still face the legacy of high borrowing during the COVID-19 pandemic and will need fiscal consolidation to put public debt “on a more sustainable path.”
“Fiscal policy has proven difficult to act quickly given public sentiment, which brings us to the main challenge facing the IMF – it is dealing with a low-growth, high-debt conundrum,” she said.
She added that with U.S. inflation heading toward the Fed’s target and new data showing a strong job market, the Fed may wait for more data before cutting rates further.
