IMF Warns of Risks from Donald Trump's Policies Amid Forecast Economic Growth in the US

The International Monetary Fund (IMF) has warned of potential economic risks posed by former President Donald Trump's proposed policies, including higher tariffs, tax cuts, and immigration restrictions. According to the IMF, these measures could lead to increased inflation, making it difficult for the Federal Reserve to lower interest rates and potentially disrupting global economic stability. Revised growth forecast: A mixed bag for the US and global economy In the latest World Economic Outlook, the IMF has significantly adjusted its forecast for the US's 2025 growth, increasing from 2.2% to 2.7%. This adjustment places the US ahead of other G7 economies in terms of growth forecasts. However, this estimate is still 0.1% lower than last year's forecast, reflecting the nuanced impacts of current policies and market instability. Pierre-Olivier Gourinchas, chief economist of the IMF, has announced forecasts that the US economic growth in 2026 is expected to slow down to 2.1%. These estimates, released just a few days before Trump's inauguration, do not fully reflect his government's policies, as the IMF finds it difficult to incorporate proposals lacking detailed implementation plans. Impact of Trump's policies: Inflation and bond market concerns The IMF emphasizes that the economic policies proposed by Trump, especially the combination of tax cuts, deregulation, and tariff increases, could stimulate demand while limiting supply. This imbalance could reignite inflationary pressures in the US, prompting the Federal Reserve to raise interest rates instead of cutting them. Higher interest rates could strengthen the US dollar, further exacerbating the trade deficit. The fund also warns that the removal of regulations could boost the economy by reducing administrative barriers and encouraging innovation over the next five years. However, there are risks that exceed limits, which could lead to excessive deficits and long-term inflation risks. The bond market has shown signs of instability, with concerns about financial deficits leading to cautious investor behavior. Cross-Atlantic Divergence: Europe's Slow Growth While the economic prospects of the United States seem optimistic, the eurozone is struggling with slower growth. Germany, the main engine of the European economy, is projected to grow by only 0.3% by 2025. The eurozone as a whole is expected to grow by 1%, slower than the UK, which is forecasted to grow by 1.6%. This difference highlights the uneven recovery among major global economies. Kristalina Georgieva, Managing Director of the IMF, emphasized that the uncertainty surrounding Trump's trade policies is contributing to obstacles for the global economy. Long-term interest rates have risen globally despite a decrease in short-term interest rates, reflecting increased anxiety among investors. China's growth and the risks of the debt trap The IMF has also revised its economic growth forecast for China, raising it to 4.6% by 2025. However, Gourinchas warns that China faces the risk of falling into a "debt-deflation-stagnation" trap. If fiscal measures fail to stimulate demand, falling prices could increase the real value of debt, weakening economic activity. Global growth prospects and inflation The IMF expects the global economy to grow by 3.3% in 2025 and 2026, slightly higher than the October forecast but much lower than the historical average of 3.7%. Inflation is expected to decrease from 4.2% in 2025 to 3.5% in 2026. However, persistent inflation risks may require central banks to maintain higher interest rates for a longer period, further exacerbating financial and fiscal pressures. Conclusion IMF warnings emphasize the complexity of managing economic policies in an interconnected world. While the US is preparing for strong growth, Trump's proposed policies could create unintended ripple effects, such as higher inflation and global trade disruption. These challenges, along with disparate growth trajectories among the US, Europe, and China, illustrate the delicate balance policymakers must navigate to maintain global economic stability. DYOR! #Write2Earn #Write&Earn $BTC {spot}(BTCUSDT)