US president-elect Donald Trump’s tariff threats are already driving up longer-term borrowing costs around the world, IMF Managing Director Kristalina Georgieva said.
Uncertainty about the incoming administration’s trade policies is adding to worldwide economic headwinds and “is actually expressed globally through higher long-term interest rates,” Georgieva told reporters in Washington on Friday last week.
That is happening even as short-term rates have gone down, a “very unusual” combination, she said.
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Trump, who is to take office on Jan. 20, has vowed to slap new charges on imports from US adversaries such as China, as well as allies including Canada and Mexico, raising concerns that supply-chain disruption would slow economic growth and push prices higher.
IMF chief economist Pierre-Olivier Gourinchas warned in October last year that tariffs and trade uncertainty could reduce global output by about 0.5 percent.
The closing weeks of last year and first days of the new year have seen sharp increases in bond yields across much of the world and a surge in the US dollar, as investors weigh the likely impact of Trump’s second-term policies.
“Not surprisingly, given the size and role of the US economy, there is keen interest globally in the policy directions of the incoming administration, in particular on tariffs, taxes, deregulation and government efficiency,” Georgieva said.
The impact from US trade policies would be most acute on countries and regions integrated with global supply chains, including many medium-sized economies and Asia as a region, she added.
The greenback’s strength “could fuel higher funding costs for emerging economies and especially for low-income countries,” she said.
US economic numbers, including Friday last week’s blockbuster jobs report, show that the US Federal Reserve “can afford to wait for more data before making further cuts” to its benchmark interest rate, she said.
The IMF has been warning since the COVID-19 pandemic of mediocre growth prospects for the global economy. In October last year, it predicted a 3.2 percent expansion this year, a forecast that is due to be revised on Friday when the fund publishes an update of its World Economic Outlook.
Georgieva hinted that the overall number would not change much, saying that the IMF sees “global growth holding steady,” but she pointed to significant divergences.
“The US is doing quite a bit better than we expected before,” she said.
By contrast, the EU is “somewhat stalling,” India “a little weaker,” and China is facing challenges from deflationary pressure and low domestic demand.
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