Donald Trump's tariffs have caused a "major negative shock" to the global economy, the International Monetary Fund (IMF) said, as it downgraded growth forecasts for the United States, the United Kingdom and the global economy, The Guardian reports.
"We expect the sharp increase in tariffs and uncertainty on April 2 to lead to a significant slowdown in global economic growth in the near term," the IMF said in assessing the impact of Trump's policies, as finance ministers around the world prepare to meet in Washington.
Releasing the latest edition of its World Economic Outlook, the IMF cut its forecast for global GDP growth for this year to 2,8%, down 0,5 percentage points from its January projection.
Although the forecasts are based on existing trade policies, the IMF points out that "increased downside risks dominate the outlook."
According to IMF forecasts, all major economies will be affected.
The UK is expected to grow by 1,1% this year, down from the January forecast of 1,6%.
An even more pronounced deterioration is forecast for the United States, from 2,7% to 1,8%.
Regarding the downgrade of the forecast for the UK, Finance Minister Rachel Reeves stressed that the IMF still expects Britain to be the fastest growing European G7 economy in 2025.
Reeves, however, added:
"The report clearly shows that the world has changed, which is why I will be in Washington this week to defend British interests and promote free and fair trade."
During the meeting, Reeves will meet for the first time with his American counterpart Scott Besant, where he will lobby for tariff reductions for the UK.
The IMF warned that even after Trump's "pause" in imposing reciprocal tariffs on a number of countries, trade barriers have reached their highest level in a century.
Given the uncertainty over the future direction of trade policy, the IMF predicts that companies around the world will respond by reducing spending.
"Faced with increased uncertainty about access to markets – their own, but also those of their suppliers and customers – many companies will pause investments, reduce investments and purchases. Likewise, financial institutions will reconsider credit arrangements for businesses. Increased uncertainty and tightening financial conditions represent a global negative demand shock that will weigh on economic activity," the IMF said.
The IMF warns that developing economies could be particularly hard hit, as "unfavourable global financial conditions" will make debt repayments even more difficult, which could be exacerbated by cuts in international aid. The UK recently announced historic cuts to its foreign aid budget to boost defence spending, while Trump is waging legal battles to dismantle USAID.
"Limited international development assistance can put additional pressure on low-income countries, pushing them deeper into debt crises or forcing them to make significant fiscal adjustments, with immediate consequences for growth and living standards," the IMF points out.
As finance ministers prepare for the meetings, the IMF has called for coordinated action to: reduce trade tensions, restructure the debts of poor countries, and jointly respond to global challenges.
However, it is unclear what role the United States could play in such discussions, given its "America First" policy.
As Wall Street stocks continued to fall on Monday, the IMF expressed concern in a report about the "shock waves" that Trump's trade policies have caused in financial markets, warning that the situation could worsen further.
In particular, the risk of "severe volatility" in currency markets is highlighted, which could be very challenging, especially for developing economies.
The dollar fell to its lowest level in three years as Trump continued to criticize Federal Reserve Chairman Jay Powell, calling him "Mr. Too Late" for his delay in lowering interest rates.
According to the IMF, the probability of a recession in the US has now risen to almost 40%, significantly higher than the October forecast of 25%, just before Trump's election victory.
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