IMF chief Kristalina Georgieva. — Bloomberg
Washington: The head of International Monetary Fund (IMF) has warned that the chances of global recession will rise if uncertainty over a US-led trade war continues to drag.
While the Washington-based fund doesn’t currently forecast such a downturn, the impact of tariff threats has created a level of uncertainty that’s “off the charts”, IMF chief Kristalina Georgieva said in a Bloomberg Television interview.
“If we have this cloud of uncertainty coming lower and lower, making it difficult for the business community and for households to take decisions, we will have a self-inflicted injury that I guarantee you we would regret,” Georgieva said.
The IMF chief spoke on the sidelines of the fund’s spring meetings in Washington, hosted alongside the World Bank, which gathers finance ministers and central bankers from across the globe.
The IMF earlier in the day released its updated World Economic Outlook, cutting its global growth forecast to 2.8% this year, down from 3.3% in January.
“If we see faster resolution of trade tensions, that would possibly lift up projections for global growth, great for investors, great for families,” Georgieva said in the interview.
“If we do not succeed and uncertainty remains very high, tariff problems hang on our head for much longer, then we can actually see even further reduction in global growth, and then the danger of recession looms bigger,” she said.
Given the stop-start nature to Trump’s tariff rollout, the IMF introduced a cutoff date of April 4, meaning they do not include the administration’s latest salvos, which have hiked the level of new levies against China to 145%.
If these policies were to be taken into account and sustained, this could significantly slow global growth, the IMF said.
“We are entering a new era as the global economic system that has operated for the last 80 years is being reset,” IMF chief economist Pierre-Olivier Gourinchas told reporters in Washington on Tuesday.
The fund also warned that risks to financial stability are rising from the trade war, as it triggers heightened volatility across stock, currency and bond markets.
It urged policymakers to bolster their defences against further shocks.
Central banks “have one instrument I want to emphasise and that’s credibility, and credibility comes with independence,” she said when asked about Trump’s threats to fire Federal Reserve chair Jerome Powell amid his demands for interest rate cuts. “This particular instrument, credibility, is really very valuable to protect.” — Bloomberg
