IMF World Economic Prospects: Economic uncertainty is now higher than it was ever during Covid

Barcelona Barcelona, ​​April 27 (The Conversation) The International Monetary Fund (IMF) has just published its world economic prospects, and it is not an expert to deduce that, even among some of the world’s greatest economic thoughts, there is currently difficult to come. The IMF and World Bank hold their spring meetings in Washington DC every spring: a week of seminars, briefings and press conferences focusing on the global economy, international development and world financial markets. At the spring meetings and the annual meeting, held every fall, the IMF publishes its global economic growth forecasts. For its 2025 spring meeting, the IMF published a base forecast, as well as an addendum that analyzed the tariff events that took place between April 9 and 14. According to the fund’s report, GDP of the world will grow by 2.8% in 2025 and 3.0% in 2026. For the euro area, growth will be 0.8% and 1.2% for 2025 and 2026 respectively. These predictions represent a significant downward review of IMF figures published just three months ago. Worldwide, growth in 2025 is down 0.5% compared to the fund’s January update, with a reduction of 0.2% for the euro area. One important shift is the key to understanding the most recent IMF report and the pessimistic predictions: We live in a much more uncertain world than we did three months ago. Trump, rates and uncertainty if one had to summarize the new US tariff policy in a word ‘unpredictable’, the so -called ‘liberation day’ of April 2, 2025, would represent the greatest tariff increase in modern history. Just a week later, the US president made two more announcements. First, a 90 -day freezing point on tariff increases, apparently looking for bilateral agreements with the countries to which he applied rates above 10%. Second, that China would be excluded from this exception, with rates on the products raised to 145%. This freezing point means that EU goods sold to the US will have a rate of 10% instead of the 20% announced on April 2. However, the 10% applied by the new US administration is still much higher than the average rate of 1.34% which was in effect before April 5. But what will the rate be after these 90 days? What about in December? What about over 2 years? What goods will be released? How far will the trade war go between China and the US? The answer to all these questions is: Nobody knows. This uncertainty is clear in the spring forecast of the IMF. Uncertainty is out of the cards. The IMF’s World Handsie Neighboring Index is currently 7 times higher than in October 2024, much higher than in the pandemic. As far as the economy is concerned, this uncertainty is much worse than a high but definite rate. With a rate, businesses can at least reorganize their production chain, and consumers can look for alternative products. There is a cost, but at least businesses and consumers can plan for it. However, no one can calculate these costs today, because no one knows how rates will develop. A US company today may decide to buy a specific EU product and think the tariff will be 10%, but upon arrival of the product in the US, it appears that the tariff has risen to 100% because a presidential advisor said it would be good for the US economy to raise tariffs on the product. It is incredible, although it may sound, it seems to be how the rates are decided and issued. According to one report, US Treasury and Trade Secretaries could only persuade Trump to freeze recent tariff increases because Peter Navarro – the president’s economic advisor and tariff ideologist – was in another room at the time. The end result of this unpredictability is that the best action for both consumers and businesses is action. Fear and volatility It is no surprise that these constant changes in plans cause great instability in financial markets. Although Trump may have celebrated rising stock prices triumphantly immediately after the tariff freeze was announced, financial markets are now subject to levels of uncertainty and fear similar to those seen during Covid-19. Five years ago, volatility was associated with a greater demand for US government debt due to the ‘flight to safety’ effect: investors who sell higher risk investments and safer assets, such as gold and government bonds, buy in times of uncertainty. Now we see exactly the opposite. The price of US bonds has fallen since “liberation day”, which means investors sell it. In other words, markets no longer believe that US government debt is a safe asset. Given the role of the dollar and US debt in international markets, this paradigm shift can produce even more financial instability. Supply chains break (again) Covid-19, the last major global economic crisis, have one thing in common with the current situation: disruption of global supply chains. During the pandemic, it was incarceration that forced the production to stop. Today it is the imposition of rates. However, there is another big difference. During Covid, people knew it was a matter of time before vaccines became available and normalality returned. Instability in financial markets does not come from any virus today, but from President Trump’s own advisers who sell him all kinds of plans to protect US economic interests. (The Conversation) AMS first published: 27 Apr 2025, 09:18 am Ist