FLASH
Shkruar nga Eswar Prasad & Caroline Smiltneks
Just when the world economy was showing signs of stabilization, the chances of a global recession caused by Donald Trump's recent policies are increasing significantly.
Although it is premature to make such a claim, the decline in global trade and the uncertainty fueled by Trump's policies will curb economic growth in the coming months.
The timing of this crisis could not have been less opportune. Just as the world economy was showing signs of stabilization, the chances of a global recession caused by Donald Trump's recent policies are increasing significantly.
The latest update of the Brookings-FT Tiger index (Global Economic Recovery Tracking Indices) reveals a mixed picture, with a decline in financial indices but also in private sector confidence, although macroeconomic data suggests a more optimistic scenario.
Of course, the biggest factor in this forecast is US President Donald Trump's tariff policy, which has shaken up global trade and sparked turmoil in financial markets, seriously damaging economic growth prospects that looked promising at the beginning of this year.
The US economy performed well in the first quarter of this year. Output and employment grew strongly through March, and inflation fell sharply. But that all changed earlier this month with Trump's announcement of "reciprocal" tariffs on all of the US's trading partners.
Since that day, financial markets are still reeling, and a subsequent pause in tariffs (except on imports from China) and the changes that have been made have done little to cushion the blow from the White House. The uncertainty has severely damaged consumer confidence.
It is likely to have a significant impact on business investment and job growth. To make matters worse, as the costs of tariffs are passed on to American consumers and fuel inflation, it will limit the ability of the US Federal Reserve to support the economy and prevent financial turmoil.
The impact of the tariffs has already increased the likelihood of the US economy stalling, and its policymaking will remain unpredictable and without any clear economic logic. Meanwhile, the eurozone economy continues to operate on two tracks.
Key countries like Austria, France and Germany are performing poorly and are facing significant fiscal pressures, especially now that political unrest is pushing up borrowing costs. On the other hand, Greece, Italy, Portugal and Spain are doing better.
Looking ahead, escalating trade tensions are likely to hurt key sources of production. Meanwhile, the Japanese and British economies have experienced modest growth, but this could soon come to an end, given their underlying fragility, lack of policy room, and exposure to global trade tensions.
China's economy, which had shown signs of stabilization, now faces a major challenge. Its expanding industrial capacity has not kept pace with domestic demand (as reflected in persistent deflationary pressures), and it is now facing an all-out trade war with the United States.
China has bravely responded to Trump's tariff hikes, imposing retaliatory tariffs and other measures aimed at hurting the U.S. economy. But there is a limit to this strategy, given weak Chinese consumer demand and the rush by other countries to prevent a flood of Chinese exports.
While China has room to use fiscal and monetary policies to boost domestic consumption, this will only work if complemented by broader confidence-building reforms. India's economy continues to perform well, driven by strong rural consumption and a robust services sector.
It has been insulated from the worst effects of tariffs imposed by the US because of its expanding domestic demand, resilient financial markets, and the role it plays as an alternative supply chain base for US corporations that are shifting away from China.
In Brazil, a surge in consumer spending helped offset a decline in exports in 2024. But looser fiscal policy led to inflation and weaker growth. With consumer and business confidence falling, this could be a challenging year.
South Africa will also continue to face challenges due to ongoing energy shortages, sluggish growth and a weakening currency. Finally, the twin blows of US tariffs and rising overcapacity in China will significantly limit growth in developed and emerging market countries, especially those that are heavily dependent on exports (such as in Southeast Asia).
At the same time, trade disruptions, rising debt service burdens, and reduced foreign aid flows will have a major negative impact on low-income countries in Africa and elsewhere. As Trump’s tariffs trigger a surge in protectionist measures around the world, the era of increasingly free and unfettered trade is over.
While we are unlikely to see a full-scale retreat from free trade, global trade patterns will continue to change, regardless of how the tariffs imposed by Trump on almost all countries of the world work.
Even before President Trump announced these measures, international trade was becoming more fragmented as a result of growing geopolitical divisions. And since finance tends to follow trade, the fragmentation of global trade will generally lead to weaker cross-border economic ties.
Even if the tariff wars subside and the economic fallout softens somewhat, corporations around the world will operate in a much more uncertain and volatile global landscape. While it is premature to claim that a global economic recession is imminent, the decline in global trade volume and the uncertainty raised by recent US policies will undoubtedly slow economic growth.
Under these conditions, each country must preserve whatever space it has in the field of economic policies, in order to use these tools to maximum effect if national economic growth were to slow significantly. Reforms to promote economic flexibility and sustainability, together with measures to stimulate domestic demand, will become crucial to meet the challenges that are seen on the horizon. / Adapted from “Pamphlet” by “Project Syndicate”
Lini një Përgjigje