Worried IMF members to puzzle out effects of global trade reboot

Economic policymakers gathering in Washington DC this week will be trying to puzzle out how badly the “reboot of the global trading system” — as IMF MD Kristalina Georgieva called it — will hit inflation and growth, and what countries should do about it.

The IMF’s new global growth projections — details of which are due out on Tuesday — would see “notable markdowns but not recession”, she said, adding that the fund would also mark up its inflation forecasts “for some countries”.

The IMF/World Bank meetings bring together the top economic policymakers of the 191 member countries of the two Washington-based institutions, but also attract leading global bankers, fund managers and economists to Washington.

SA will play a prominent role this week, hosting the G20 meetings of finance ministers and central bank governors at the IMF’s Washington headquarters. Senior SA officials will also be meeting investors on the sidelines.

The sweeping tariff hikes announced by US president Donald Trump have now raised the prospect that disinflation could stall, or even reverse. But while the tariffs are widely expected to hike consumer prices in the US — contrary to White House insistence that supplier countries will bear the burden — it is not clear how they will play out globally.

The picture for policymakers is complicated by the prospect of “stagflation” in the US, whose robust economic growth could be hard hit by the tariffs at the same time as inflation rises, dragging down global growth and demand.

Reserve Bank chief economist Chris Loewald said countries needed to think about how they would be hit by the supply and demand shocks caused by the tariffs, and about the right policy settings to respond to these shocks and what tools they could use.

“Countries will come out of the Washington discussions with lessons to be drawn for their own policy,” he said.

For central bankers the big issue is how to conclude the disinflation process and understand what the risks are now to the inflation trajectories of advanced and emerging economies.

Policymakers in Washington will also be worrying about high public debt levels globally, and how to recreate the fiscal space that many countries have lost since Covid-19, Loewald said.

The new question marks add to long-standing questions about global growth, which has fallen below its long-term average of about 3.7% since the global financial crisis of 2008/09 and particularly since Covid-19.

“It’s really unclear how the global economy gets back to its long-term average,” Loewald said.

“For SA, the IMF and G20 meetings provide a really important insight into what’s going on in the world — simply being exposed to the level of discussion, the level of perspective, the dialogue that goes on,” said Loewald.

The Washington engagements are particularly important for emerging market countries that may not have the resources and economic expertise of richer countries.

Reserve Bank governor Lesetja Kganyago and finance minister Enoch Godongwana will chair the G20 finance track meetings in Washington, which are expected to devote more time than usual to assessing the state of the global economy and the potential risks to financial stability.

The G20 finance ministers and central bank governors will also discuss long-standing issues about the so-called international financial architecture. And there will a special session devoted to discussing impediments to development and growth in Africa.

Georgieva said the trade tensions were like a pot that was bubbling for a long time and was now boiling over, reflecting an erosion of trust in the international system and between countries. 

Global growth slowed to 3.2% in 2024 from 3.3% in 2023, and in its January economic update the IMF projected growth at 3.3% both in 2025 and 2026.

But UN Trade and Development projected in a report last week that global growth would slow to 2.3% — “a recessionary trend linked to escalating trade tensions and uncertainty”, the agency said.