Finance leaders from across the globe concluded their discussions this week, resigned to the fact that the international economy is more at danger from trade tensions, geopolitical uncertainty, and the enthusiasm around the US-led artificial intelligence development.
At the World Bank and International Monetary Fund, the mood was a mix of relief that US President Donald Trump’s tariffs had not caused a deeper slowdown and dread that the fallout was only just starting to lift prices, squeeze profits, and delay investments in Washington, where a partisan standoff closed the government into a third week.
Tensions between the US and China erupted once again before the organizations’ annual meetings, and the week included some of the most venomous exchanges between Washington and Beijing during Trump’s second term.
Treasury Secretary Scott Bessent hailed a Chinese negotiator as “unhinged” and maybe having “gone rogue” as both sides flaunted their superiority with export curbs in important sectors, China with rare earths and the US with sophisticated technologies.
The managing director of the IMF advised policymakers not to worry, even if the majority of the fear was occurring behind the scenes and few officials were ready to openly express their opinions on the power struggles among the world’s biggest nations. According to Kristalina Georgieva, the absence of retaliation against the twin shocks of US tariffs and a plethora of Chinese exports was preventing the collapse of poor global growth.
“We want everyone to be calm,” she said during a Thursday interview with Bloomberg Television. “And to China: Exercise caution and avoid making other nations see you as a danger to their economy.”
However, in light of growing fiscal and spillover risks, the IMF chief cautioned that nations “should not be complacent.” This decade will see the world’s public debt reach its greatest level since 1948, surpassing 100% of GDP. Argentina, whose currency is weak, is about to get a $20 billion lifeline from the United States.
Meanwhile, the most recent trade drama whirled the stock markets, which were close to setting new records, throughout the week.
US artificial intelligence chipmakers’ stock is the main driver of the current run. Central bankers and regulators have been warning about high asset prices, possible financial market complacency, and the possibility of a quick, harsh drop.
Georgieva of the IMF and a former official at the Washington-based organization were among those who compared it to the dot-com bubble that crashed in 2000. On Friday, Joachim Nagel, a member of the European Central Bank Governing Council, said, “I would not instantly concur with this perspective, but it is something we need to observe.”
According to a Bloomberg Economics analysis, a renewed trade war between the US and China plus the possibility of an AI bubble that finally pops would have a $1.4 trillion negative impact on global economy.
When officials last convened in Washington in April, a few weeks after Trump unveiled the largest set of tariff increases since the 1930s, the atmosphere was less somber. Josh Lipsky, a former consultant at the IMF and the senior director of the Atlantic Council’s GeoEconomics Center in Washington, said the recent spike in hostilities, however, dampened any hope.
“They feel better than they did in April, but they are still quite concerned about all the danger, which may be a tipping point at any time,” Lipsky said. “That tension manifested itself throughout the week as a combination of worry and relief.”
The IMF’s predictions for global growth this year and next year, which are both far below the historical average of around 3.7%, supported that muted mood. Global GDP might be 0.3 percentage points slower if trade threats come to pass, Krishna Srinivasan, the head of the IMF’s Asia and Pacific Department, told Haslinda Amin of Bloomberg TV.
However, by the end of the week, there were indications that President Xi Jinping and Trump might meet in South Korea later this month to resolve certain issues. With significant stakes in preventing the conflict from becoming worse, that is the hope of the middle-sized, affluent and poor economies.
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Lars Klingbeil, the German Finance Minister, said, “We are keeping a careful eye on the issue.” “I am now a little optimistic that President Trump and President Xi can settle a lot during their meeting.”
Meeting of the G-7
“We disagree with China’s attitude, and we will observe the situation very carefully in the hope that we can do what we can politically to guarantee that there is no escalation, but rather a détente between the US and China,” Klingbeil said, referring to Germany’s explicit statement during this week’s Group of Seven negotiations.
The main concerns of monetary policymakers include maintaining growth via trade disruptions, preventing abrupt currency fluctuations, and controlling inflation.
Lesetja Kganyago, the governor of South Africa’s central bank, warned that US-China tensions would cause prices in other nations to drop, hurting domestic producers.
The intriguing aspect of that spillover, according to Kganyago, is that it may initially be advantageous and might actually lower costs elsewhere. “And it may really turn out to seem like dumping or anything like that.”
Pan Gongsheng, the governor of the People’s Bank of China, cautioned at meetings of Group of 20 finance chiefs and central bank executives that the combination of trade and geopolitical tensions with financial instability may yet cause market turbulence.
According to the IMF, this kind of volatility is inevitable and will need that policymakers remain alert and adaptable. Muhammad Aurangzeb, the finance minister for Pakistan, said, “The truth is that people are tenacious and innovative, and you find out methods to compensate things.”