The International Monetary Fund (IMF) has warned of serious challenges posed by the U.S. trade war initiated by President Donald Trump for emerging markets, surpassing the impact of the COVID-19 pandemic.
Impact of Tariffs on Emerging Markets
IMF's first deputy managing director, Gita Gopinath, stated that the unpredictable impact of tariffs on developing countries and global markets would make it particularly difficult for central bankers to support their economies. She noted that U.S. tariffs represent a tougher challenge for emerging market policymakers than during the pandemic.
Economic Consequences and Risks
Gopinath added that U.S. Federal Reserve policymakers are not ready to lower interest rates until they are confident that tariffs will not further fuel inflation. The situation serves as a demand shock amid rising trade barriers from the U.S., leading to slower growth and inflation. Economists also warn about the excessive dependency on capital flows and the increasing influence of cryptocurrencies.
Outlook for Developing Economies
Despite some positive developments such as the appreciation of emerging market currencies, OECD warns of weak economic growth, akin to the downturn during COVID-19. This creates risks for other countries and could lead to capital outflows, currency depreciation, and rising financing costs.
The U.S. trade war significantly impacts developing economies, generating numerous challenges and uncertainties in the global market. Hopes for recovery may be undermined by new tariffs and deteriorating market conditions.
