5 months ago

Rising Interest Rates and Trade Policy Uncertainty

The International Monetary Fund (IMF) remains one of the leading analytical hubs assessing global financial and economic risks. The recent statements by IMF Managing Director Kristalina Georgieva have shed light on important processes unfolding in the world amid impending political changes in the United States.

Trade Relationship Uncertainty and Its Impact on the Financial System

According to Kristalina Georgieva, the latest surge in uncertainty, spurred by statements from U.S. President-elect Donald Trump, has already begun to impact global financial markets. Fears over potential tariff policy tightening are pushing up long-term interest rates despite a decrease in short-term rates. Georgieva describes this phenomenon as "highly unusual" and acknowledges its negative effect on the international credit market.

Experts are primarily concerned about Trump's promises to increase import tariffs on countries seen as adversaries to the U.S., such as China, as well as on goods from allies including Canada and Mexico. Such measures could significantly disrupt global supply chains, potentially slowing economic growth and increasing inflationary pressure.

Global GDP at Risk

In October 2023, IMF's Chief Economist Pierre-Olivier Gourinchas warned of the potential consequences of escalating trade tensions. He specifically forecasted a reduction in global GDP by approximately 0.5% due to tariff barriers and overall uncertainty. Against the backdrop of the current situation, these bleak forecasts seem increasingly probable.

Such consequences are likely to affect not only the world's largest economies but also emerging markets. Rising long-term rates make it more expensive and difficult to finance large infrastructure projects, inevitably hindering global economic growth.

U.S. Dollar and Bond Yields: Early-Year Volatility

In addition to the rise in interest rates, the Trump administration's statements have triggered a sharp spike in bond yields. Analysts highlighted signs of massive investor capital redistribution in the late weeks of 2023 and early days of 2024. The U.S. dollar has strengthened amid expectations of increased economic isolation, while bond yields in several countries rise steadily.

This trend puts pressure on other currencies, intensifying imbalances in international financial markets. Emerging economies, in particular, feel the impact as a stronger dollar leads to capital outflows and increases the burden of currency liabilities.

Challenges for the Global Economy

The general uncertainty surrounding trade policy is causing concern among international experts. The potential intensification of Trump's protectionism could manifest through the following risks:

1. Slowing economic growth due to supply chain disruptions.

2. Increased costs of debt obligations for governments and the corporate sector.

3. Inflation growth driven by tariff restrictions.

4. Heightened instability in currency markets.

This chain reaction could lead to the emergence of new economic challenges in the coming years, weakening the global economy as a whole.

The current situation highlights the fragility of the global economic system, which remains vulnerable to changes in the policy of the world's major powers. Even minor changes in trade conditions can have substantial impacts on markets and increase the burden on financial institutions worldwide.

Global Economy U.S. Trade Policy Global GDP International Monetary Fund Financial Markets