Trade tariff uncertainty is “literally off the charts” but there will not be a global recession, the International Monetary Fund (IMF) has said.
The international economic group said in its forecast for the world economy that global share prices have dropped “as trade tensions flared” and warned about an “erosion of trust” between countries.
However, it stopped short of predicting a worldwide recession, saying “our new growth projections will include notable markdowns, but not recession”.
The comments come as leaders and businesses respond to US President Donald Trump’s “Liberation Day” tariffs announced on 2 April.
Global stock markets plummeted following the announcement and many have not recovered since – with the FTSE 100 index of the largest firms listed in the UK still 4.6% lower than a month ago.
Meanwhile, predictions of a global recession have risen as firms slash spending and investment amid the uncertainty and some countries respond to Trump with tariffs of their own.
On Wednesday, the World Trade Organization (WTO) forecast that global trade will fall this year because of Trump’s tariffs.
It follows similar comments from the Bank of England, which has said that rising trade tensions from tariffs have “contributed to a material increase in the risk to global growth” and financial stability.
Meanwhile, the European Central Bank (ECB) said on Thursday it had reduced its key interest rate “owing to rising trade tensions”.
But the IMF’s outlook is rosier by contrast. “[This] is a call to respond wisely,” said IMF managing director Kristalina Georgieva on Thursday.
“A better balanced, more resilient world economy is within reach. We must act to secure it.”
She added “all countries must redouble efforts to put their own houses in order” in response to the uncertainty.
She specifically called on Europe to cut down on “restrictions on internal trade in services” and “deepen” its single market.
She also said China needs to increase its social safety net so that there is less “precautionary saving” and said the US government needs to reduce its debt.