Kristalina Georgeieva, the Managing Director of IMF, said that despite rising market volatility and trade tensions, no global recession was likely.
Georgieva, who spoke in Washington at the IMF’s headquarters ahead of the IMF and World Bank Spring Meetings next week, stressed the cost economics of what she called a “global trade system reboot”.
Unpredictable shifts in Trade Policies
According to Reuters the IMF head painted a picture of a world economy riven by unexpected adjustments in trade policies.
Georgieva stated in prepared remarks that disruptions come with costs. She indicated the IMF’s revised outlook would show “notable reductions” in growth as well as a higher rate of inflation in certain regions.
She cited The Wizard of Oz and said, “We’re no longer in Kansas,” highlighting the unprecedented level of uncertainty.
In referencing recent changes to the US Treasury yield curvature, she warned that volatility has already caused stress in the financial markets.
Global fallout from tariff hikes
Georgieva claims that recent US tariffs, along with retaliatory actions taken by China, the European Union and other countries, has increased economic tension in the world.
The US has raised its effective tariffs to levels that have not been seen for decades. This has prompted countermeasures which are now impacting economies all over the world.
Georgieva says that smaller nations are caught up in crosscurrents as the giants battle it out.
The tensions between the United States and the European Union and China, which are three of the top importers in the world, have a far-reaching impact on smaller economies and those that are emerging, especially for those who already face financial difficulties.
Long-term risk and short-term pain
Georgieva warned that while some big economies might get a temporary boost in domestic investment as a reaction to tariffs.
A long-term protectionist policy, however, is almost certain to harm creativity and productivity.
Georgieva stated that “Protectionism undermines productivity in the long term, particularly for smaller economies.”
She said that governments who protect industries against foreign competition risk hindering innovation and entrepreneurship.
Georgieva urged the governments to continue to be committed to financial and economic reforms. She cited the importance of a credible and flexible monetary policy as well as effective financial supervision and safeguarding aid to countries with low income.
Her remarks also emphasized the importance of exchange rate flexibility, which she claimed would help emerging nations to navigate recurring global shocks.
Georgieva made a call for diplomacy and encouraged the leading world economies to come back to the table to negotiate and create a new trade deal that would promote openness and reverse the rise of nontariff and tariff barriers.
She responded, “We don’t want a world divided by divisions. We need an economy that is more resilient.” She said that all countries, big and small, could and should do their part in strengthening the global economy, especially during an age of greater shocks.
As new information becomes available, this post IMF chief warns economic uncertainty amid US China EU trade tensions could be updated.
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