Will the global economy stop? It is best to support for it anyway

Copyright © HT Digital Streams Limit all rights reserved. Opinion Eswar Prasad, Caroline Smiltnex 4 min Read 22 Apr 2025, 02:00 pm ist while the Trump tariffs cause a surge of protectionist measures around the world, the era of increasingly free and unlimited trade has come to an accident. (IStockphoto) Summary, as trade uncertainty is high, countries must preserve the macroeconomic policy space they have, in case the growth slowly delays and accept reforms aimed at flexibility and resilience. The timing could hardly have been less favorable. Just as the global economy shows signs of stabilization, the chance of a policy-induced global recession has risen significantly. The latest update of the Brookings-FT Tiger (detection indices for the Global Economic Recovery) index reveals a mixed picture, with the financial index falling and crumbling confidence in the private sector, even if macroeconomic data (which delays other indicators) suggests a more benign scenario. It is clear that the biggest factor is that US President Donald Trump’s tariff policy, who disrupted world trade and fueled turmoil in financial markets, which undermined the growth prospects that seemed promising at the beginning of the year. The US economy performed well in the first quarter of 2025: Production and employment grew strongly through March, and inflation gradually dropped. But that changed in April with Trump’s announcement of “reciprocal rates” aimed at almost all US trading partners. Also read: Trump rates: The global bond market has reached that diplomacy has not been able to, financial markets have cast, and a subsequent break on rates (except on imports from China) and various exclusions have done little to end the whiplash effect. The uncertainty has severely pleased the consumer’s confidence and is likely to take a large amount in the growth of business and employment growth. The US federal reserve’s ability to support the economy and the financial unrest of the forest will be limited as the cost of tariffs is transferred to US consumers and increases inflation. The tariff blood bath has already increased the likelihood of the US economy, and it is clear that US policy will remain fundamentally unpredictable and that there is no clear economic logic. Meanwhile, the economy in the eurozone is still working on two tracks. Core countries such as Austria, France and Germany underperformed and faced tremendous fiscal pressure, especially now that political turmoil increased the borrowing costs. By contrast, Greece, Italy, Portugal and Spain fared better. Looking forward, the increasing trading tension is likely to take a large amount on the manufacturing power houses. Elsewhere, Japanese and British economies have experienced modest growth, but it may end soon, given their underlying fragility, a lack of space for policy maneuver and exposure to global trading tensions. China’s economy, which shows signs of stabilization, is now a major challenge. The expanding industrial capacity has not been linked by domestic demand (as reflected in persistent deflationary pressure), and now it faces an overall trade war with the United States. Also read: Trade Face-Off: Will Trump’s America First of XI’s China fall back? China confronted Trump’s increasing rates with Bravado, which imposed retaliation rates and other measures intended to cause the US economy to pain. But there is a limitation on this strategy, given China’s poor consumer demand and the rabbit by other countries to prevent a flood of Chinese exports from ending up on their banks. While China has space to use fiscal and monetary policies to strengthen domestic consumption, it will only work if it is supplemented with broader reforms for confidence in the building. India’s economy is still performing well due to strong rural consumption and a robust service sector. This is isolated from the worst effects of rates by expanding domestic demand, resilient financial markets and roll as an alternative supply chain base for US corporations moving from China. In Brazil, an uptick in consumer spending helped compensate falling exports in 2024, but loose fiscal policy led to inflation and poorer real (inflation-adjusted) growth. With consumer and business confidence, this can be a challenging year. Similarly, South Africa will continue to struggle, due to persistent power shortages, sluggish growth and a weakened currency. Finally, the twin shocks of US rates and the rising excess capacity in China will severely shrink the growth in emerging markets and developing countries, especially those that are very dependent on exports (as in Southeast Asia). At the same time, trade interruptions, growing debt service loads and scaled-off foreign aid flow will be a very high toll on low-income countries in Africa and elsewhere. As the Trump tariffs cause a surge of protectionist measures around the world, the era of increasingly free and unlimited trade has come to an end. Although a full -scale haven of free trade is unlikely, global trading patterns will continue to shift, regardless of how rates play out. Also read: Spaghetti-Bowl trading transactions can change the worldwide balance of power, even before Trump exercised his tariff hatch, international trade has already been more fragmented by the growing geopolitical fissures. Since finances tend to follow the trade, the fragmentation of global trade in general will result in poorer border border economic links. Even if the tariff wars subside as the consequences sink, corporations around the world will navigate a much more uncertain and volatile global landscape. Although it is premature to argue that a global recession is around, the division of global trade and an increased level of policy uncertainty will undoubtedly suppress growth. Each country will have to preserve the economic policy space so that it can deploy these instruments to the maximum effect if the growth delays sharply. Reforms to promote economic flexibility and resilience, together with measures to increase domestic demand, will be crucial to defending the turbulence. © 2025/Project -syndicate The authors are a professor at Cornell University and Senior Fellow at the Brookings Institution; and a student at Cornell University. 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