Rising trade tensions and sweeping shifts in the global trading system will trigger downward revisions of the International Monetary Fund’s economic forecasts but no global recession is expected, IMF Managing Director Kristalina Georgieva said on Thursday.
Georgieva said countries’ economies were being tested by a reboot of the global trading system – sparked in recent months by U.S. tariffs and retaliation by China and the European Union – that had unleashed “off the charts” uncertainty in trade policy and extreme volatility in financial markets.
“Disruptions entail costs … our new growth projections will include notable markdowns but not recession,” she said in an address ahead of the spring meetings of the IMF and World Bank in Washington next week.
Trump’s tariffs and the turmoil in financial markets are expected to dominate the spring meetings, which bring together central bankers and finance ministers from around the world.
Elevated uncertainty also raised the risk of financial market stress, Georgieva said, noting that recent movements in U.S. Treasury yield curves should be taken as a warning. “Everyone suffers if financial conditions worsen,” she said.
Georgieva said the world’s real economy is functioning well, with a strong labor market and a solid financial system, but warned that increasingly negative perceptions and concerns about recession could also affect economic activity.
“One thing I learned through crisis periods is perceptions matter as much as reality,” she said. “If perceptions change negatively that can be quite detrimental to the performance of the economy.”
U.S. President Donald Trump has upended the global trading system with a tsunami of new tariffs, including a 10% U.S. duty on goods from all countries and higher rates for some, although those have been paused for 90 days to allow negotiations. China, the EU and other countries have announced retaliatory measures.
The IMF in January forecast global growth of 3.3% in 2025 and 3.3% in 2026. It will release an updated World Economic Outlook on Tuesday.
Georgieva gave no details about the expected revisions, but warned that prolonged uncertainty would be costly and said the consequences of the trade reboot would be “significant.”
She said the IMF did not expect a big swing in either direction on inflation generally, since tariffs could push up consumer and producer prices, or could cause people to hold back spending, which could actually drive inflation lower. But updated IMF forecasts would show higher inflation for some countries, she said.
Economists polled by Reuters expect the aggressive U.S. tariff policy to trigger a significant slowdown in the U.S. economy this year and next, with the probability of a recession over the coming year surging to 45%, the highest since December 2023, from 25% last month.
BUBBLING TENSIONS
Georgieva said trade tensions had been bubbling for some time, given a buildup of tariffs and non-tariff barriers by China, the U.S. and others, but they were now boiling over.
Both the U.S. and China had grievances, but it was important for the world’s two largest economies to reduce uncertainty and agree on a fairer, rules-based trading system, she said, warning of spillover effects for smaller countries.
She urged countries to respond wisely to the “sudden and sweeping shifts” in U.S. effective tariff rates.
Josh Lipsky, senior director of the Atlantic Council’s GeoEconomics Center, said the IMF, whose largest shareholder is the United States, was noting both the impact of tariffs on inflation and the global economy, while being clear about the underlying imbalances that had led to this moment.
“The IMF is engaging in data diplomacy in the midst of a raging global trade war. It’s a delicate balancing act,” he said.
The Trump administration has pulled out of other international institutions, including the World Health Organization, raising concerns that it could also seek to exit financial institutions such as the IMF and World Bank.
Rising tariffs hit growth upfront, Georgieva said, noting that past evidence showed that higher tariff rates were paid by importers through lower profits and consumers through higher costs. In big economies, they could also create incentives for new inward investment, creating new jobs, but this took time.
“Protectionism erodes productivity over the long run, especially in smaller economies,” she said, warning that moves to shield industry from competition also undercut entrepreneurship and hurt innovation.
Georgieva urged countries to continue economic and financial reforms while maintaining agile and credible monetary policy, as well as strong financial market regulation and supervision.
Emerging market economies should preserve their exchange rate flexibility, and donor countries should better protect aid flows to vulnerable low-income countries, she added.
Georgieva also called for cooperation in an increasingly multi-polar world, and urged the largest economies to reach a trade settlement that preserved openness and restarted a global trend toward lower tariff rates and reduced non-tariff barriers.
“We need a more resilient world economy, not a drift to division,” she said. “All countries, large and small alike, can and should play their part to strengthen the global economy in an era of more frequent and severe shocks.”
(Reporting by Andrea Shalal)
