An “alarming” shift towards economic protectionism poses a threat to the global economic recovery, top officials have cautioned as the race for the US presidential election nears its end. Speaking at the IMF’s annual meetings with the World Bank in Washington, officials expressed relief at signs of a soft landing for the global economy, avoiding recession after a period of high inflation. However, they warned of increasing political risks in the US and elsewhere.
Agustín Carstens, general manager of the Bank for International Settlements, stated that any move towards protectionism could have negative consequences such as higher prices, increased unemployment, and reduced growth. Klaas Knot, the Dutch central bank chief, and chair of the Financial Stability Board, warned of potential price corrections in certain markets due to rising geopolitical risks.
There are concerns among policymakers that the rules-based global order represented by institutions like the IMF and World Bank is under threat. With the US election between Donald Trump and Kamala Harris closely contested, there is the possibility of a significant policy shift in the world’s largest economy next year. Trump’s proposed tariffs and other measures could have a significant impact on global trade.
The IMF has warned of the potential damage from a trade war involving the US, Europe, and China. Economists predict that such actions could lead to a decrease in global output and increased consumer prices. The Budget Lab at Yale University estimates that Trump’s trade policies could cost households thousands of dollars.
Despite concerns about the future, there is optimism about the global economy’s ability to combat inflation. Central banks are gradually easing interest rates to support growth without causing inflation. However, the IMF warns that the global economy is at risk of becoming stuck in a cycle of low growth and high debt.
Global public debt is expected to surpass $100 trillion by the end of the year, with debt levels approaching 100% of global GDP by the end of the decade. Some experts fear that financial markets are not fully aware of the impact of this debt burden on advanced and emerging economies.
There are also concerns about the potential deterioration of trade relationships and the uncertainty it could bring. Paschal Donohoe, president of the Eurogroup, highlighted the risks for both Europe and America if trade difficulties arise. The uncertainty created by such challenges could jeopardize the progress made towards a soft landing for the global economy.