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Top officials warn that the trend of economic protectionism risks derailing the global economic recovery as the US presidential election race enters its final days.
Speaking on the sidelines of the IMF’s annual meeting with the World Bank in Washington this week, officials expressed relief at signs that the global economy is on track for a soft landing, avoiding a recession. economic recession following the worst inflation in a generation.
However, they warned that rising political risks in the US and elsewhere threatened the outlook.
“Any new attempt to reverse globalization and retreat from protectionism would be alarming,” Agustín Carstens, director general of the Bank for International Settlements, told the Financial Times. “This could increase prices, increase unemployment and slow growth.”
Klaas Knot, head of the Dutch central bank and chairman of the Financial Stability Board, the world’s financial watchdog, said he sees “some price correction risks” in certain markets. due to the “contrast” between rising geopolitical risks and current valuations.
Some policymakers fear that the rules-based global order embodied by the Bretton Woods institutions – which this year marks their 80th anniversary – is at risk of being upset.
With Donald Trump and Kamala Harris standing shoulder to shoulder in the opinion pollThe world’s largest economy is likely to undergo a dramatic change in policy next year.
Trump has pledged to impose an overall 20% tariff on America’s partners, as well as a 60% tax on Chinese imports, while pursuing mass deportations of undocumented immigrants. and sweeping tax cuts.
The IMF has tried to quantify the damage that a tit-for-tat trade war involving tariffs imposed by the US, Europe and China would cause.
It is estimated that the global economy will grow 3.2% this year and next – but widespread tariffs, tax breaks, less migration and higher borrowing costs could cause output to fall 0.8% in 2025 and another 1.3% in 2026.
Economists at Morgan Stanley expect Trump’s tariff plan to drag down US real GDP growth to 1.4%, while pushing up consumer prices by 0.9%.
The Budget Lab at Yale University, a policy research center, estimates similar growth was achieved, but prices rose more sharply. They say Trump’s trade measures could cost households up to $7,600.
Add to that mass evictions, and Mahmood Pradhan, head of global macroeconomics at Amundi Asset Management, warns that the outlook could become grimmer.
“If you have a negative impact on growth and cause real wages or consumer purchasing power to decline because their prices for everyday goods are higher, then to me that looks like inflation,” he said. stagnation”.
The growing anxiety about the outlook comes despite broader optimism at annual meetings about global success in rolling back inflation after the worst shock in decades.
Price pressure seems almost defeated. Central banks are now engaged in the early stages of an easing cycle, debating how to reduce interest rates to levels that no longer hinder growth.
“The trick now is to complete the job of controlling inflation without unnecessarily damaging the job market,” Kristalina Georgieva, the head of the IMF, told reporters on Thursday.
Success on that front is crucial at a time when the global economy “risks being stuck on a low-growth, high-debt path,” she added.
Global public debt is forecast to exceed $100 trillion by the end of this year, according to estimates by the multilateral lender, with debt levels likely to reach 100% of global GDP by the end of the decade.
Some attendees worried that financial markets have yet to grasp the impact of worrying debt levels facing officials in advanced and emerging economies.
Even the US Treasury market – the largest, most important bond market – could be vulnerable to volatility if debt levels continue to rise, Pradhan said, warning of a decline in haven demand safety of foreign investors.
But the risk that long-standing relations could deteriorate into discord was top of mind for policymakers on Friday as they prepared to leave Washington.
“This is a challenge for Europe because we have very high trade intensity. It could also be a risk for the US as any trade difficulties will certainly affect the prices US consumers pay for their goods,” said Paschal Donohoe, president of the Eurogroup. .
“It has the potential to cause significant uncertainty – and by creating that uncertainty [to] reducing our ability to ensure the soft landing we have all worked so hard to achieve.”
