‘Put your economic house in order’

Projections for global growth are expected to be revised downward this week but the world economy is not headed for recession at this time, says International Monetary Fund managing director Kristalina Georgieva.

The bad news, however, is that small countries like Barbados will be “caught in the crosscurrents” of a trade war involving China, the European Union and the United States – the world’s three largest importers.

“Ultimately, trade is like water: when countries put up obstacles in the form of tariff and nontariff barriers, the flow diverts. Some sectors in some countries may be flooded by cheap imports; others may see shortages. Trade goes on, but disruptions incur costs,” Georgieva warned on Thursday in her curtain-raiser speech ahead of this Spring Meetings of the IMF and World Bank in Washington D.C.

“We will quantify these costs in our new World Economic Outlook, to be released early next week. In it, our new growth projections will include notable markdowns, but not recession. We will also see markups to the inflation forecasts for some countries.

“We will caution that protracted high uncertainty raises the risk of financial market stress. Earlier this month, we saw unusual movements in some key bond and currency markets. Such movements should be taken as a warning. Everyone suffers if financial conditions worsen,” the IMF boss cautioned in her speech titled Toward A Better Balanced And More Resilient World Economy.

With the inflation and financial market stress now higher, she urged all countries to “redouble efforts to put their own houses in order”.

UN Trade and Development (UNCTAD), meanwhile, appears to be less optimistic about this year’s global economic prospects than the IMF.

Last Wednesday, UNCTAD published its new Trade And Development Foresights 2025 report and warned that the world economy “is on a recessionary trade tensions “Global growth 2.3 per cent to escalating UNCTAD predicts.

“Developing external conditions, trade and greater are opportunities. international regional trade.”

Concerns Organisation Global Trade Wednesday. Secretariat see continued and 2026, with with world GDP increasing at However, of new tariffs WTO economists resulting in forecast for reduction in The WTO trade is likely exports from 12.6 per cent.

The application broader spillover to an even sharper goods trade, recessionary trajectory, driven by escalating tensions and persistent uncertainty”. growth is expected to slow to cent in 2025 – a recessionary trend linked escalating trade tensions and uncertainty,” predicts.

Developing economies face risks and worsening conditions, but growing South-South greater regional economic integration opportunities. UNCTAD calls for greater international policy coordination and strengthened trade.”

Concerns are also coming from the World Trade Organisation (WTO), which published its latest Trade Outlook and Statistics report last Wednesday. At the beginning of the year, the WTO in Geneva, Switzerland “expected to continued expansion of world trade in 2025 with merchandise trade growing in line GDP and commercial services trade at a faster pace”.

However, it now says that “the large number tariffs introduced since January prompted economists to reassess the trade situation, in a substantial downgrade to their merchandise trade and a smaller in their outlook for services trade”. WTO now predicts that global merchandise likely to fall by 0.2 per cent this year, with from North America forecast to drop by cent. application of “reciprocal” tariffs and spillover of policy uncertainty could lead sharper decline of 1.5 per cent in global trade, the WTO said. Trade policy policy uncertainty The volume to grow by four percentage WTO Directorsaid: “I am deeply surrounding stand-off. The has temporarily on global trade.

“However, to act as a brake negative consequences vulnerable economies “In the face the unprecedented into the organisation, field, streamline agreements In her address representatives IMF members Georgieva said volume of services trade is forecasted four per cent in 2025, around one point less than expected. Director-General Dr Ngozi Okonjo-Iweala deeply concerned by the uncertainty surrounding trade policy, including the US-China The recent de-escalation of tariff tensions temporarily relieved some of the pressure trade.

However, the enduring uncertainty threatens brake on global growth, with severe consequences for the world, the most economies in particular. face of this crisis, WTO members have unprecedented opportunity to inject dynamism organisation, foster a level-playing streamline decision-making,

and adapt our agreements to better meet today’s global realities.” address delivered ahead of representatives from Barbados and 190 other members descending on the US capital, said the resilience of countries now faced a big test because “financial market volatility is up . . . and trade policy uncertainty is literally off the charts”.

She saw negative consequences for inflation, economic growth, and productivity in particular.

“Uncertainty is costly. The complexity of modern supply chains means imported inputs feed into a broad range of domestic products. The cost of one item can be affected by tariffs in dozens of countries,” she noted.

“In a world of bilateral tariff rates, each of which may be moving up or down, planning becomes difficult. The result? Ships at sea not knowing which port to sail to; investment decisions postponed; financial markets volatile; precautionary savings up. The longer uncertainty persists, the larger the cost.”

Importers pay some part

The IMF managing director added: “Second, rising trade barriers hit growth upfront. Tariffs, like all taxes, raise revenue at the expense of reducing and shifting activity – and evidence from past episodes suggests higher tariff rates are not paid by trading partners alone.

“Importers pay some part through lower profits, and consumers pay some part through higher prices. By raising the cost of imported inputs, tariffs act upfront.

“Of course, if domestic markets are large, they also create incentives for foreign firms to respond with inward investment, bringing in new activity and new jobs. This, however, takes time.”

She said thirdly that “protectionism erodes productivity over the long run, especially in smaller economies”.

“Shielding industries from competition reduces incentives for efficient resource allocation. Past productivity and competitiveness gains from trade erode. Entrepreneurship gives way to special pleadings for exemptions, protection, and state support. This hurts innovation,” Georgieva advised.

“But again, if domestic markets are large and domestic competition is vibrant, negative effects can be mitigated.”

Her recommendation to all countries was to “redouble efforts to put their own houses in order [because] in a world of higher uncertainty and frequent shocks, there is no room for delay in reforms to enhance economic and financial stability and improve growth potential”.

“Economies face the new challenges from a weaker starting position, with public debt burdens that are much higher than just a few years ago. As such, most countries must take resolute fiscal action to rebuild policy space, setting out gradual adjustment paths that respect fiscal frameworks,” she suggested.

“Some countries, however, may experience shocks necessitating renewed fiscal support; this, if it must be provided, should be targeted and temporary.”

To protect price stability, monetary policy must remain agile and credible, supported by a strong commitment to central bank independence, she said.

Barbados is among 48 countries now getting balance of payments support from the IMF, and Georgieva said her institution would “help countries manage macroeconomic adjustment and advance reforms”.

She also stressed the need for global cooperation.

“I fully expect that our Spring Meetings . . . – as a gathering of 191 IMF member countries – will provide a vital forum for dialogue at a vital time. 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,” the IMF official said.

With the US facing off against other economic powers in the Global North, UNCTAD officials see an opportunity for Barbados and other Global South countries to do more trade with each other.

“Already accounting for about one third of global trade, the potential of South-South economic integration offers opportunities for many developing countries, it said. (SC)

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