IMF Warns Negative Supply Shock Incoming, Forecasts ‘Significant Slowdown’ of Global Economy
The International Monetary Fund (IMF) estimates a collapse for the global economy, largely driven by tariff-driven uncertainty.
In the New World Economic Outlook report, the IMF Says That after the endurance of a “long and unprecedented series of shocks,” the global economy appears to be stabilizing.
However, the IMF said the world's financial scene is now facing significant risks because “uncertainty has risen to new highs” because of President Trump's threat to impose high tariff rates.
Trump's tariff agenda motivated the IMF to change its “remarkable” forecasts for global growth compared to its last update in January.
“For this reason, we expect a sharp increase on April 2 in both tariffs and uncertainty will lead to a significant slowdown in global growth in the near term. While this is our central scenario – or 'reference forecasting' – many possible paths exist, reflect a diverse set of channels …
The common denominator, however, is that tariffs are a negative shock of supply for the economy that imposes them, as resources are re -granted towards the manufacture of noncompetitive goods, with the resulting loss of combined -productive, lower activity, and higher production costs and prices. Moreover, in the medium term, by reducing the competition, tariffs increase the strength of the domestic producers market, reduce incentives to modernize, and create many opportunities for renting rent. For trading partners, tariffs generate a negative external shock of demand, which drives foreign customers away from their products, even though some countries can benefit from rerouting trade flows. “
In expecting potential interruptions, the IMF said it changed projection for a global trade growth of 1.5%, with a “partial recovery” that was aforecast for next year.
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