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Research conducted for the Financial Times highlights increasing threats to global growth due to a US-driven trade shock that is impacting confidence and financial markets. This comes as crucial meetings of economic policymakers are scheduled in Washington this week.
The Brookings-FT Tracking Indexes for the Global Economic Recovery, known as Tiger, reveal a sharp decline in confidence indicators and worsening financial market conditions. This downturn in the global economic outlook is in sharp contrast to the year’s relatively stable beginning.
Eswar Prasad, a senior fellow at the Brookings Institution, indicated that predicting a global recession would be “premature.” However, he cautioned that the disruption in global trade and heightened policy uncertainty could significantly hinder growth. He noted the widespread effects on open economies reliant on trade, compounded by negative confidence impacts.
These developments emerge as economic policymakers and finance ministers worldwide convene in Washington for the IMF/World Bank spring meetings, the first since President Donald Trump took office. Kristalina Georgieva, the IMF’s managing director, warned that the fund is preparing to revise growth forecasts downward due to increased financial market volatility and unprecedented trade policy uncertainty.
Previously, in January, the IMF had forecasted global growth of 3.3 percent for this year and next, with a US growth rate of 2.7 percent projected for this year. However, the announcement of substantial tariffs on major US trade partners by President Trump on April 2 has led to significant declines in financial markets and numerous downward revisions of growth forecasts.
The European Central Bank recently reduced its key interest rate to 2.25 percent in response to the anticipated consequences of trade conflicts, citing “rising trade tensions” as a factor deteriorating the growth outlook.
The Brookings-FT Tiger Index, released biannually, compares indicators of real activity, financial markets, and confidence against historical averages for both advanced and emerging economies. It highlights particularly low confidence levels in the US, China, and Germany. While indicators of real activity in the US remained strong, they do not account for the effects of Trump’s trade policies.
Some indications of robust activity in the US persist, such as a 1.4 percent increase in retail sales in March. However, this increase might partly result from a surge in auto sales as consumers anticipate tariffs.
The Tiger report’s financial markets index includes more recent data, with equity prices accounted for up to mid-April. Business and consumer confidence data extend to the end of March, supplemented by news reports for later updates.
Prasad pointed out that uncertainty has significantly impacted consumer confidence and is expected to affect business investment and employment growth negatively. He added that the Federal Reserve’s capacity to stabilize the economy might be limited by tariffs contributing to domestic inflation.
The IMF’s revised growth forecasts are expected to be released on Tuesday. In light of policy uncertainty, weakening sentiment, and the financial market downturn, private sector economists have been lowering their growth predictions. Citigroup analysts now forecast global growth of 2.1 percent this year and 2.3 percent in 2026, cautioning that risks to their forecast are heavily skewed towards the downside.
The Washington meetings occur as policymakers await more insight into the US administration’s approach to the Bretton Woods institutions. The US, as the largest shareholder of the IMF and the World Bank, has yet to appoint a permanent director to either organization’s board.
Neither the president nor Treasury Secretary Scott Bessent has indicated an intention to follow the Project 2025 manifesto’s recommendation to cease US financial contributions to the IMF and the World Bank. However, the administration is reviewing the US’s role and support for international institutions. Bessent is expected to discuss the administration’s policies concerning the IMF and World Bank in an upcoming discussion.
Some Republican lawmakers are advocating for a shift in approach towards these institutions. French Hill, chair of the House Committee on Financial Services, supports a “back to basics” strategy, focusing on macroeconomic surveillance instead of financing to tackle climate change.
Georgieva and World Bank President Ajay Banga have recently met with Bessent, according to informed sources.
This article also includes contributions from Aime Williams in Washington.
