Trade war weakens global demand, fuels inflationary pressures: IMF

Logo of The International Monetary Fund (IMF)

The International Monetary Fund (IMF) warned that global current account imbalances widened sharply last year, highlighting the risks posed by escalating trade tensions, which could dampen global demand and fuel inflationary pressures.

In its annual External Sector Report released today, July 22, covering the world’s 30 largest economies, the IMF noted that while current account surpluses and deficits are not inherently problematic, they can become sources of risk when they exceed sustainable levels.

The report cited factors such as fiscal policy uncertainty and mounting trade disputes as potential triggers for declining global risk appetite and rising financial stress, with adverse effects on both debtor and creditor economies.

It also criticized the tariff policies of US President Donald Trump, warning that a further escalation of the trade war could have significant economic repercussions. These include a short-term slowdown in global demand and increased inflation due to higher import costs.

The widening imbalances, the report added, were primarily driven by growing surpluses and deficits among the world’s three largest economies: the United States, China, and the European Union.