Global Growth Hit by Trade Disputes

The International Monetary Fund (IMF) has significantly revised its global economic growth projections downward, primarily attributing the shift to the ongoing trade disputes initiated by the United States. The forecast, initially set in january, has been slashed by half a percentage point to 2.8% for the current year. This adjustment reflects the anticipated repercussions of widespread import tariffs on economies worldwide.

This revision comes as global trade tensions continue to simmer. The initial shockwaves from tariff announcements have been compounded by ongoing negotiations and retaliatory measures, creating an environment of uncertainty for businesses and investors alike. According to recent data from the World Trade Institution (WTO), global trade growth has already slowed significantly in the past year, highlighting the tangible impact of these disputes.

Spain: A Beacon of Economic Optimism in Europe

Amidst a general atmosphere of economic pessimism, Spain stands out as the only major European economy for which the IMF has improved its growth forecast. The Spanish economy is now projected to expand by 2.5%, an increase of 0.2 percentage points from the previous estimate. This contrasts sharply with downward revisions for economic powerhouses like Germany, France, Italy, and the united Kingdom.

This positive outlook for Spain may be attributed to a combination of factors, including recent government initiatives aimed at stimulating domestic demand and attracting foreign investment. Furthermore, Spain’s diversified economy and strong ties to latin America may provide a buffer against the direct impacts of trade disputes concentrated in othre regions.

Impact on Major Economies: US and China Feel the Pinch

The United States, the instigator of many of the current trade policies, is expected to experience a notable slowdown. The IMF has reduced its growth forecast for the US economy by nearly a full percentage point, down to 1.8%. China, the primary target of US tariffs, is also projected to see a decline in growth, with the forecast lowered by 0.6 percentage points to 4%.

These figures underscore the interconnectedness of the global economy and the potential for protectionist measures to backfire. While the intent of tariffs may be to protect domestic industries, the resulting disruptions to supply chains and increased costs for consumers can ultimately hinder economic growth.

Defense Spending as a Counterbalance?

Looking ahead to 2026, the IMF anticipates a global growth rate of 1.7%, a decrease of 0.4 percentage points from earlier projections. The Eurozone is expected to grow by 1.2%,down 0.2 percentage points. While trade tensions are expected to shave off 0.4 percentage points from global growth, an increase in public spending on defense is projected to partially offset this impact, contributing a positive 0.2 percentage points.

This shift towards increased defense spending reflects a broader trend of geopolitical uncertainty and rising security concerns in various regions. However, the extent to which such spending can truly compensate for the negative effects of trade disputes remains a subject of debate among economists.

In line with this trend,Spanish President Pedro Sánchez recently announced a significant investment plan of €10.471 billion to bring defense spending to 2% of the country’s GDP by 2025.

Economist’s Perspective

According to the IMF’s chief economist, Pierre-loivier Gourinchas:

Tariffs are a negative demand shock for the economy that imposes them, since resources are relocated to the production of non-competitive goods, with the resulting loss of aggregate productivity, lower activity and higher production costs and prices.
Pierre-Loivier Gourinchas, IMF Chief Economist

Gourinchas further suggests a fundamental shift in the global economic order:

The global economic system under which it has operated during the last 80 years is being restarted, promoting the world towards a new era. Existing standards are being challenged, while new ones are emerging.
Pierre-Loivier Gourinchas, IMF Chief Economist

Inflationary Pressures Persist

The IMF also anticipates that the trade war will impede the reduction of inflation. Global inflation is projected to be 4.3% in 2025 and 3.6% in 2026, both figures being 0.1 percentage points higher than previously forecast.