Global Economy Faces Heightened Uncertainty in 2025 Due to US Trade Policy Directions
International Monetary Fund (IMF) Managing Director Kristalina Georgieva has warned that the global economy in 2025 faces heightened uncertainty due to economic policies, particularly the directions of US trade policy.
Uncertainty in Global Economy
Georgieva noted that "uncertainty is expressed globally through higher long-term interest rates," even though short-term interest rates have gone down, calling it "very unusual." The IMF chief also pointed out a shift in market expectations, which leads to knock-on effects on asset prices and on exchange rates.
Impact on Emerging Markets
A strong dollar, both against advanced economy currencies and against emerging market currencies, could potentially "fuel higher funding costs for emerging market economies, especially for low-income countries." This could lead to a significant impact on the global economy, particularly for countries and regions that are more integrated into global supply chains.
Call for Policy Reforms
Georgieva urged policymakers to tackle the low-growth, high-debt conundrum. "Countries do need to continue on a path to price stability, they do need to pursue gradual fiscal consolidation, but they also urgently need to adopt reforms that are pro-growth, and boost growth in a durable way," she said.
Key Quotes
- "Not surprisingly, given the size and role of the US economy, there is keen interest globally in the policy directions of the income administration, in particular, on tariffs, taxes, deregulation and government efficiency."
- "This uncertainty is particularly high around the path for trade policy going forward, adding to the headwinds facing the global economy, especially for countries and regions that are more integrated into global supply chains."
- "Countries cannot borrow their way out of it. They can only grow out of this problem."
IMF World Economic Outlook (WEO) Update
The IMF is set to release its World Economic Outlook (WEO) Update on Friday, January 17.
Conclusion
In conclusion, the global economy is facing heightened uncertainty in 2025 due to the directions of US trade policy. The IMF’s warning highlights the need for policymakers to take action to address the low-growth, high-debt conundrum and promote pro-growth reforms.
FAQs
Q: What is the source of the uncertainty in the global economy?
A: The uncertainty is primarily due to the directions of US trade policy.
Q: How will a strong dollar impact emerging markets?
A: A strong dollar could potentially "fuel higher funding costs for emerging market economies, especially for low-income countries."
Q: What is the IMF’s recommendation for policymakers?
A: The IMF urges policymakers to tackle the low-growth, high-debt conundrum by pursuing pro-growth reforms and promoting price stability.