{"id":141260,"date":"2025-04-22T14:47:39","date_gmt":"2025-04-22T14:47:39","guid":{"rendered":"https:\/\/www.tradefinanceglobal.com\/?p=141260"},"modified":"2025-04-22T14:52:28","modified_gmt":"2025-04-22T14:52:28","slug":"imf-warns-of-tariff-impact-calls-for-improved-collaboration","status":"publish","type":"post","link":"https:\/\/www.tradefinanceglobal.com\/posts\/imf-warns-of-tariff-impact-calls-for-improved-collaboration\/","title":{"rendered":"IMF warns of tariff impact, calls for \u201cimproved collaboration\u201d"},"content":{"rendered":"
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The International Monetary Fund (IMF) has just published its World Economic Outlook as of April 2025, portending a fall of global GDP growth by 0.5%, to 2.8% for the year.\u00a0<\/strong><\/p>\n<\/div>\n\n\n

This is largely the result of the \u201cmajor negative shock\u201d that US President Donald Trump\u2019s tariffs have imposed on the global economy.<\/p>\n\n\n\n

The report is structured in three chapters, covering global policy, demographic impacts (including of an ageing population), and the impact of refugee and migration policy on economic growth, particularly within developing economies.<\/p>\n\n\n\n

Since February, the US has announced multiple waves of tariffs against trading partners, culminating in near-universal levies on 2 April, which triggered historic drops in equity markets. Though markets partially recovered following pause announcements after 9 April, uncertainty\u2014especially regarding trade policy\u2014has surged to unprecedented levels.<\/p>\n\n\n\n

The impacts of tariffs, IMF<\/a> reports, vary considerably across countries. In the US, where demand was already softening, growth projections have been lowered to 1.8% for this year, with tariffs accounting for nearly half the reduction. China’s growth forecast has been cut to 4%, reflecting weaker external demand. The eurozone faces a more modest reduction to 0.8%, with stronger fiscal stimulus providing some offset.<\/p>\n\n\n\n

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Source: <\/em>IMF<\/em><\/a><\/p>\n\n\n\n

Global trade growth is expected to decline more severely than output, dropping to just 1.7% in 2025. <\/p>\n\n\n\n

The report presents several forecast scenarios reflecting differing policy paths. A pre-April 2 forecast (excluding the most recent tariff escalation) would have yielded 3.2% global growth in both 2025 and 2026. A model-based forecast incorporating announcements after 9 April suggests that even with temporary halts to some tariffs, global growth prospects remain similar to the reference forecast due to elevated US-China tariffs and continued uncertainty.<\/p>\n\n\n\n

Despite the slowdown, global growth remains above recession levels. The IMF recommends restoring trade policy stability and forging mutually beneficial arrangements to address longstanding gaps in international trading rules. <\/p>\n\n\n\n

Domestic imbalances contribute to uneven growth, with high consumption in the US, weak demand in China, and subdued manufacturing activity in many economies. Addressing these underlying issues could help offset economic risks and close external imbalances whilst building a more inclusive trading system.<\/p>\n\n\n\n

Interestingly, the IMF\u2019s inflation forecast has been relatively stable. Emerging and developing markets in Asia, in particular, are expected to see more muted inflationary pressures. Yet this outcome is a likely result of the negative demand shock which tariffed countries are experiencing as export demand diminishes. Furthermore, rising import prices from a trade war could increase already tentative inflationary pressures.<\/p>\n\n\n\n

In this vein, the IMF notes that since over 80% of trade invoicing is conducted in US dollars, this projection could be reversed if the USD appreciated. <\/p>\n\n\n\n

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Source: <\/em>IMF<\/em><\/a><\/p>\n\n\n\n

To doubt is to waver<\/h2>\n\n\n\n

Trade policy uncertainty has become a major impediment to economic growth, with the prolonged elevation of this uncertainty causing investment distortions and market volatility. <\/p>\n\n\n\n

Trade uncertainty, the IMF emphasises, weighs adversely on supply- and demand-side indicators, creating a cycle of negative wealth effects. <\/p>\n\n\n\n

The impact of this trade uncertainty manifests in financial market volatility, supply chain disruptions, and dampened investment.<\/p>\n\n\n\n

To mitigate these impacts, the IMF recommends international cooperation through regional and cross-regional groups to sustain global growth and tackle common problems. It suggests that a stable and predictable trade environment could be achieved through pragmatic cooperation and deeper economic integration, including non-discriminatory unilateral reductions of trade barriers or expanded trade at regional, plurilateral, or multilateral levels.<\/p>\n\n\n\n

The IMF also cautions against broad subsidies as a response to trade distortions, noting they generate large fiscal costs and additional distortions. While targeted industrial policies may alleviate specific sectoral market failures in certain cases, they should be subjected to a comprehensive cost-benefit analysis and narrowly focused on well-identified market failures to minimise distortions.<\/p>\n\n\n\n

Reducing policy-induced uncertainty would at least go some way in working against the bubble of uncertainty which global trade currently doesn\u2019t seem capable of bursting.<\/p>\n\n\n\n

\u201cPower hungry\u201d: The impact on commodity markets<\/h2>\n\n\n\n

The future of commodities markets appears to be characterised by this same increasing volatility and changing dynamics across different sectors, as geopolitics and technology developments prove a double-edged sword: but also pose room for opportunity. <\/p>\n\n\n\n

The report highlights some key metrics influencing their conclusion:<\/p>\n\n\n\n