Donald Trump\u2019s tariff threats over Greenland risk triggering a \u201cspiral of escalation\u201d that would damage the world economy and lead to a sharp sell-off in financial markets, the International Monetary Fund (IMF) has said.<\/p>\n
In an update as Trump threatened to impose tariffs on Nato allies<\/a> opposed to his ambition to take over the Arctic territory from Denmark, the Washington-based fund said a renewed eruption in trade tensions was among the biggest risks to global growth in 2026.<\/p>\n Pierre-Olivier Gourinchas, the IMF\u2019s chief economist, said a \u201cspiral of escalation\u201d between the US and Europe would have a \u201cmaterial impact\u201d that would inflict pain on households on both sides of the Atlantic. \u201cWe all know there are no winners in a trade war and that\u2019s the thing to remember,\u201d he said.<\/p>\n Pierre-Olivier Gourinchas has called for an \u2018amicable solution\u2019 to geopolitical tensions. Photograph: Jos\u00e9 Luis Maga\u00f1a\/AP<\/p>\n Speaking at the launch of the Washington-based fund\u2019s updated world economic outlook (WEO) report, Gourinchas called for both sides to find an \u201camicable solution\u201d to the current situation. \u201cIf we were to enter a phase in which there were escalation, and tit-for-tat policies, that would certainly have an even more adverse effect on the economy,\u201d he said.<\/p>\n The intervention comes as world leaders prepare to gather in Davos, Switzerland, for the annual World Economic Forum meeting \u2013 widely seen as a critical moment to salvage international cooperation<\/a>. The IMF managing director, Kristalina Georgieva, is expected to hold meetings in Davos amid international efforts to dial down tensions with Washington.<\/p>\n In an update of its WEO report published in October, the IMF said the powerful headwinds from global trade tensions in 2025 had been offset by surging investment in technology \u2013 including artificial intelligence \u2013 in the US and Europe.<\/p>\n It said global growth was projected to remain resilient at 3.3% in 2026 and 3.2% in 2027: rates similar to an estimated 3.3% growth rate in 2025 after surging investment in AI helped the world economy offset the impact from trade tensions.<\/p>\n However, the IMF forecasts were finalised in December, before an explosion in geopolitical tensions at the start of 2026, notably the US seizure of Venezuela\u2019s president, Nicol\u00e1s Maduro<\/a>, the eruption of protests in Iran<\/a> and Trump\u2019s threats to seize Greenland.<\/p>\n The IMF said global tensions and tariffs could blow its forecasts off course. Photograph: Beno\u00eet Tessier\/Reuters<\/p>\n The IMF said its forecasts were based on a fall in US tariff rates in 2026 and 2027, after a year in which the world economy managed to avoid the worst of the fallout from Washington\u2019s trade war \u2013 helped by AI investment.<\/p>\n Gourinchas said the shock of a tit-for-tat trade war could lead to a \u201crepricing\u201d by financial markets. Global markets have reached record highs amid a massive influx of cash into the US technology sector.<\/p>\n A trade war could lead investors to \u201clook at the situation and have to reassess what the value of financial markets is,\u201d he said. \u201cThis volatility is bad for business decisions; it\u2019s bad for investment, it\u2019s bad for consumption, it leads to uncertainty,\u201d Gourinchas added.<\/p>\n Reflecting the technology boom and limited impact on US consumers from the president\u2019s trade wars so far, the IMF issued a sharp upgrade for US growth to 2.4% this year, up from its prediction in October for growth of 2.1%. It suggested there were also signs that \u201ctechnology-related investment had contributed to activity\u201d in Spain and the UK, although not at the same scale as in the US.<\/p>\n The fund left its forecasts for the UK unchanged for 2026 and 2027, predicting growth of 1.3% this year and 1.5% the year after. However, it also issued a modest upgrade for its prediction for 2025, up by a percentage point to 1.4%.<\/p>\n The UK\u2019s growth projection for next year puts it behind only the US and Canada of its G7 counterparts. Rachel Reeves, the chancellor, said the forecasts showed 2026 was \u201cthe year the country turns a corner\u201d. \u201cThe IMF has upgraded our growth for the third time in a row since April 2025, putting us on course to be the fastest growing European G7 economy this year and next,\u201d she said.<\/p>\n However, rising geopolitical tensions and a full-blown trade war would blow the IMF forecasts off course. \u201cGoing forward this is a major risk, this is something that could materially impact growth if we have higher levels of tariffs; if we have higher levels of geopolitical tension. That is something we are monitoring carefully,\u201d Gourinchas said.<\/p>\n","protected":false},"excerpt":{"rendered":"Donald Trump\u2019s tariff threats over Greenland risk triggering a \u201cspiral of escalation\u201d that would damage the world economy…\n","protected":false},"author":2,"featured_media":423576,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":{"0":"post-423575","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-economy","8":"tag-au","9":"tag-australia","10":"tag-business","11":"tag-economy"},"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/423575","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=423575"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/423575\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/423576"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=423575"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=423575"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=423575"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}