The International Monetary Fund is warning countries about an impending global recession, citing US President Donald Trump’s tariff strategy and geopolitical indifferences as factors that could destabilize global financial markets.
In a report released Monday, the IMF cautioned that escalations in geopolitical risk, especially related to trade conflicts, could lead to major and lasting corrections in global asset prices. The global lender noted recent developments, particularly the White House’s tariff agenda, have introduced a “heightened uncertainty” that could disrupt macro-financial stability across economies.
The IMF’s assessment follows several weeks of volatility in global financial markets. Since President Trump’s January 20 inauguration for a second term, the S&P 500 index has fallen more than 10%, bond markets have experienced several swings on both sides, and gold prices have surged to record highs.
The world lender’s spring meeting is scheduled for April 21, where Trump’s tariff policies are expected to dominate the agenda.
Financial institutions caught in market whiplash
Per the IMF, price movements were more profound on April 2, the US president dubbed “liberation day,” when a fresh round of tariffs was announced against imports from several countries.
The Fund said institutions such as banks, hedge funds, private equity firms, and pension funds face elevated risks from large, unpredictable market moves. According to the report, margin calls, an event that occurs when banks require borrowers to post additional collateral, have seen an uptick that has given hedge funds a run for their money.
Earlier this month, following Trump’s tariff announcement, hedge funds experienced several instances of margin calls since the COVID-19 pandemic in 2020.
“Major geopolitical risk events can trigger large and persistent corrections in asset prices, generating market volatility that could threaten macro-financial stability,” the IMF stated.
The report also examined geopolitical threats over the past decade and discussed the US-China trade war under Trump’s first term, which it reckoned would add to the recession fears, albeit slightly.
Other geopolitical elements, like Russia’s invasion of Ukraine, were listed as examples of global market impact events. Still, the Fund reiterated that Trump’s focus on trade in his second term is more aggressive than the POTUS’s first tenure at the White House.
Data shows that the United States has raised tariffs to the highest level in a century, while China has responded in kind. The world’s two largest economies are now imposing import levies exceeding 100% on each other’s goods, effectively doubling the price of cross-border products.
Such protectionist policies, the IMF warned, are increasing the difficulty for investors in accurately pricing geopolitical risks. This uncertainty could lead to what it described as “sharp market reactions,” compounding the threat of volatility.
IMF Chief: Liberation Day is disastrous for the global economy
In the statement, IMF Managing Director Kristalina Georgieva has spoken against “Liberation Day,” stating that the president’s tariff program “clearly represented significant risk” to the global economy.
Georgieva, like most analysts worried about Trump tariffs, propounded that the longer-term consequences of the taxes will increase the so-called “market tail risks.” These refer to the likelihood of rare but severe portfolio losses, such as during a financial crash. And if the risks grow, she asserted, so does the possibility of a market collapse.
“Geopolitical tensions and abrupt policy shifts heighten investor anxiety. This can contribute to feedback loops where falling asset prices further erode investor confidence, amplifying downward pressure on markets,” the director added.
She also cautioned nations about the effects of tariffs on sovereign debt markets. Sovereign risk premiums, which is the cost of credit default swaps that protect against government default, are rising.
The yield on the US 10-year Treasury note stood at 4.43% on Monday, after rising steeply last week, based on over-the-counter interbank quotes for the government bond’s maturity. This, the Fund said, could spill into other countries through international trade and finance channels, particularly in emerging markets with higher debt burdens.
Meanwhile, a recent survey by Reuters shows that consumer confidence in America has dropped because of fears over inflation, which has climbed to its highest point since 1981. That sentiment is evident in several major global investment banks, many of which have recently flagged recession possibilities stemming from Trump’s economic policies.
The IMF also released an accompanying blog examining the impact of US-China tariff actions between 2018 and 2024. It found that announcements during that period consistently pushed stock markets lower in both America and the East Asian country.
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This articles is written by : Nermeen Nabil Khear Abdelmalak
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