Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: This week, the International Monetary Fund is holding its Spring
Speaker 2: Meeting in Washington, DC.
Speaker 1: Around this time of the year, every year, central bank
Speaker 1: governors and finance ministers from around the world all arrive
Speaker 1: in DC to meet with the World Bank and the IMF.
Speaker 1: It's kind of all part of the US leadership of
Speaker 1: the global economy.
Speaker 2: Bloomberg Global Economy Reporter and The Current has covered the
Speaker 2: meeting before.
Speaker 1: Normally, the conversations are on growth and inflation and very
Speaker 1: boring stuff that people aren't interested in.
Speaker 2: This time, I hasn't been boring because right now world
Speaker 2: economies are in a moment of unprecedented uncertainty. Trump's teriff
Speaker 2: announcements have caused ongoing volatility in markets, They're impacting consumer sentiment,
Speaker 2: and they're threatening the US's reputation as a financial safe haven.
Speaker 2: Earlier this week, the IMF released a forecast predicting a
Speaker 2: global economic slowed.
Speaker 1: It was a big warning from the IMF this week,
Speaker 1: premised on the impact of tariffs and trade uncertainty, that
Speaker 1: those policies that the US are pursuing are going to
Speaker 1: hurt economic growth, not just in the US but around
Speaker 1: the world.
Speaker 2: This morning, all eyes were on US Treasury Secretary Scott Bessant,
Speaker 2: who reaffirmed US support for the IMF while calling on
Speaker 2: the institution to help rebalance international trade.
Speaker 1: My goal this morning is to outline a blueprint to
Speaker 1: restore equilibrium to the global financial system and the institutions
Speaker 1: designed to uphold it.
Speaker 2: I'm Sarah Holder, and this is the big take from
Speaker 2: Bloomberg News today. On the show, how the world's top
Speaker 2: economists are assessing the impact of the US's trade war
Speaker 2: and what it means for global economic output and the
Speaker 2: GDPs of countries around the world. At its core, the
Speaker 2: IMF performs two functions. It identifies potential financial and economic
Speaker 2: risks across the globe, and it's a crisis lender, so
Speaker 2: when a government runs out of money, the IMF can
Speaker 2: step in as a lender and to advise on next steps.
Speaker 1: It's one of the world's, if not the world's, most
Speaker 1: premier economic institution.
Speaker 2: A big feature of the IMF Spring meeting is its
Speaker 2: Global Economic Outlook. It's gut check of the world's economic health.
Speaker 2: Only this year that forecast had to be overhauled in
Speaker 2: a matter of weeks. I want to get metap for
Speaker 2: a moment and just talk about the forecast itself and
Speaker 2: how it was made. The IMF is calling this a
Speaker 2: reference forecast because it's economist had to scrap projections. Just
Speaker 2: how unusual is that.
Speaker 1: It's very unusual to the IMF forecasting around what obviously
Speaker 1: takes several months typically speaking, are not just forecasting one economy.
Speaker 1: They're trying to pull together aggregate numbers from all around
Speaker 1: the world and pull together a clear picture and where
Speaker 1: things are headed, which is useful for investors and analysts alike.
Speaker 1: So they had that process underway that was more or
Speaker 1: less in place until April second, when the new tariffs
Speaker 1: were an ence and the IMF himselves said they had
Speaker 1: to tear up that whole set of forecasts start again
Speaker 1: and this time introduce kind of scenarios into forecast. Instead
Speaker 1: of coming out with one number, this is what we
Speaker 1: see and this is what we think is going to happen.
Speaker 1: They had to factor in a range of here's what
Speaker 1: we know so far, here's what might happen, but this
Speaker 1: may also happen. We don't know what's going to happen.
Speaker 2: This year's reference forecast was especially grim. The IMF projects
Speaker 2: that global GDP will grow just two point eight percent.
Speaker 2: That's down from previous projections made before Trump's Liberation Day tariffs.
Speaker 2: The US GDP was also revised down by nearly a
Speaker 2: full percentage point. Just to make sense of that two
Speaker 2: point eight percent number a little bit more, The IMF
Speaker 2: isn't projecting that growth is going to stop, but just
Speaker 2: that it's going to slow down. What does that actually
Speaker 2: look like in practice? How might that show up for
Speaker 2: the average person and who sees this headline and is
Speaker 2: unsure what to make of it.
Speaker 1: It's probably going to be felt most acutely in those
Speaker 1: economies that manufacture a lot of goods for export, and
Speaker 1: especially for export to say the US. So there are
Speaker 1: economies there in Southeast Asia, for example, Vietnam, you would
Speaker 1: say it would be vulnerable to a big slowdown in trade.
Speaker 1: China's manufacturing sector would obviously be vulnerable to a big
Speaker 1: slow down in trade with the US. We're already hearing
Speaker 1: through our own reporting and our colleagues around the world
Speaker 1: that shipments are being canceled and factories are putting production
Speaker 1: on hold. Is that will obviously impact employment in those
Speaker 1: manufacturing heavy economies. Mexico is another one that would be
Speaker 1: vulnerable to an impact from tariffs. So yes, you do
Speaker 1: have a global headline figure. Not everyone will necessarily feel
Speaker 1: this in the same way. Depends what sector of the
Speaker 1: economy you work in, services or manufacturing, aroun anything else.
Speaker 1: There are some positives. Germany is going to spend the
Speaker 1: money that's going to lift the European economy. China too,
Speaker 1: is put money into its economy, but the really impact
Speaker 1: I think will come to those who depend on manufacturing
Speaker 1: and on trade and on that side of things.
Speaker 2: Like the US, China had a sizeable downgrade in the
Speaker 2: latest IMF projections.
Speaker 1: China growing at four percent is well below the official
Speaker 1: target where the government wants to grow, for example, So
Speaker 1: that tells you the pressure China will be under to
Speaker 1: put money into the economy and support things and make
Speaker 1: sure that those people are finding working and factories have
Speaker 1: working that they keep things ticking over there. The US
Speaker 1: also had that down grade of almost one percentage point.
Speaker 1: That's a huge down grade for the world's biggest economy,
Speaker 1: and the US has been the locomotive for global growth
Speaker 1: over the past few years. US consumption has been so
Speaker 1: important for those exporting nations around the world, And of
Speaker 1: course that's part of the BIGG argument now over imbalances.
Speaker 1: So when you have the US being downgraded the way
Speaker 1: it has, you have China been down graded the way
Speaker 1: it has. They're the world's number one and two economies.
Speaker 1: That will obviously have spill over for the rest of
Speaker 1: the global economy, and that's why they're warning of a
Speaker 1: slower year for activity everywhere.
Speaker 2: Our colleagues at Bloomberg Economics ran their own forecast and
Speaker 2: landed in a similar place.
Speaker 3: President Trump has introduced an absolutely enormous tariff shock into
Speaker 3: the global economy.
Speaker 2: Tom Orlick is chief economist for Bloomberg Economics.
Speaker 3: US tariffs, the average tariff which US charges on imports
Speaker 3: has gone from two percent before Trump took office all
Speaker 3: the way up to above twenty percent. And if you
Speaker 3: want to understand the of the magnitude of that shock,
Speaker 3: well that takes US tariffs up to a level not
Speaker 3: seen in the last one hundred years. And modeling that
Speaker 3: shock is really pretty difficult. It is difficult because we
Speaker 3: don't know where the Trump tariffs are going to settle, right.
Speaker 3: Tariffs came out really high on Liberation Day, April the second,
Speaker 3: and then they were pretty quickly revised down, but there's
Speaker 3: a threat that they could be revised up again if
Speaker 3: other countries don't give the US what it wants. And
Speaker 3: it's difficult because, well, in general, the way economic forecasts
Speaker 3: work is you look at a similar episode in history,
Speaker 3: you see what happened then, and you apply that as
Speaker 3: a kind of template to thinking about the outlook.
Speaker 2: But this time round, it's a lot harder when there
Speaker 2: is no precedent.
Speaker 3: Exactly, Sarah, Welcome to the economics profession. There just hasn't
Speaker 3: been a shock like this since World War Two, so
Speaker 3: it's hard to find that template. So all of that
Speaker 3: is to say, there are some pretty serious caveats, a
Speaker 3: pretty wide band of uncertainty around our forecast. And I'm
Speaker 3: sure if you had the IMF here on the Big
Speaker 3: Take podcast, they'd say the same thing that said, we
Speaker 3: took the Trump tariffs and we plugged them into our
Speaker 3: model of the global economy, and what we're anticipating is
Speaker 3: that global growth in twenty twenty five is going to
Speaker 3: come in at around two point seven percent. That's much
Speaker 3: lower than the three point one percent forecast that we
Speaker 3: had before the Trump tariffs were introduced. We think the
Speaker 3: tariffs are going to stay in place. Trump wants to
Speaker 3: rebalance trade, he wants to raise revenue. You can't do
Speaker 3: that if tariffs are only in place for a short time.
Speaker 3: So our forecast for twenty twenty six twenty twenty seven,
Speaker 3: they've come down a lot as well. When you add
Speaker 3: it up, we're looking at a cost to global GDP
Speaker 3: over the next three years of around two trillion dollars
Speaker 3: if those Trump tariffs stay in place.
Speaker 2: Tom, just how significant is a two trillion dollar loss
Speaker 2: to the world's GDP? How big is two trillion?
Speaker 3: So if we look at some of the biggest economies
Speaker 3: in the world, well, Brazil, Canada, Italy, Russia, they all
Speaker 3: have annual GDP of around two trillion dollars. So a
Speaker 3: two trillion loss is roughly equivalent to saying goodbye to
Speaker 3: the entire annual output of one of those big economies.
Speaker 3: If we think about the historical context, is this as
Speaker 3: big as the COVID shock? Is this is big as
Speaker 3: the global financial crisis shock? No, it's not quite of
Speaker 3: that level of magnitude, but we're still talking about a
Speaker 3: really serious hit.
Speaker 2: After the break, we look at the impact these kinds
Speaker 2: of forecasts could have on global policy and whether any
Speaker 2: trade deals could happen. On the sidelines of the IMF
Speaker 2: meetings this week, both the International Monetary Funds forecasts and
Speaker 2: Bloomberg Economics projections highlight how difficult it will be for
Speaker 2: the global economy to absorb Trump's tariffs and the political
Speaker 2: uncertainty that comes with them.
Speaker 3: The global economy has just been hit by an absolutely
Speaker 3: enormous shock.
Speaker 1: Right.
Speaker 3: A big part of that shock comes from the tariffs themselves.
Speaker 3: An additional part of it comes from this sense of
Speaker 3: a parentaradigm shift. Right. For the last forty years, the
Speaker 3: US has been the guarranteur and the champion of the
Speaker 3: global free trade system. But now President Trump has come
Speaker 3: in and said, actually that's not correct, right, It's not correct.
Speaker 3: Trade creates some very significant costs. Huge costs for factory
Speaker 3: workers in the United States who lost out as jobs
Speaker 3: were shipped overseas to China, to Mexico, national security risks
Speaker 3: as we have a massive trade deficit with China, our
Speaker 3: main geopolitical competitor. Doesn't make sense to rely on China
Speaker 3: for so many crucial goods. So President Trump has come
Speaker 3: in and introduced this paradigm shift, and that, along with
Speaker 3: the tariff shock itself, is an important reason why everybody
Speaker 3: is scrambling to rethink their forecasts.
Speaker 2: I'm curious, in a time of such global uncertainty, how
Speaker 2: much weight policymakers and global leaders and economists such as
Speaker 2: yourselves put on these forecasts.
Speaker 3: I think, being really honest, any forecasts made now are
Speaker 3: inevitably going to be wrong.
Speaker 1: Right.
Speaker 3: They're going to be wrong because we don't know what's
Speaker 3: going to happen to tariffs. They could go up, they
Speaker 3: could go down, And they're going to be wrong because
Speaker 3: other stuff is going to happen, right, stuff that we
Speaker 3: couldn't foresee. So what we hope with our forecast is
Speaker 3: partly that we're providing people with applausible base case, but
Speaker 3: more important that we're providing people with a way of
Speaker 3: thinking about the dynamics at work now. Are these forecasts
Speaker 3: changing the view in the White House? I doubt it.
Speaker 3: I think what potentially is changing the view in the
Speaker 3: White House is what's happening in the financial markets, and
Speaker 3: what we've seen since that April the Second Liberation Day
Speaker 3: is just enormous volatility in global markets and bad news
Speaker 3: for the United States. Right, Global stocks are down, US
Speaker 3: docs are down more, the dollar has significantly weakened. There
Speaker 3: was a moment last week where it felt like the
Speaker 3: treasury market could be on the brink of dysfunction.
Speaker 1: Right.
Speaker 3: President Trump, his advisors, they're looking at these market moves.
Speaker 3: I think that is an important part of the reason
Speaker 3: we've seen a pullback from some of those very very
Speaker 3: elevated tariffs that were introduced on April.
Speaker 2: Second, how might further escalations or de escalations in the
Speaker 2: trade war impact that top line number.
Speaker 3: So, I think there's a few things to think about here, Sarah.
Speaker 3: So the first one is I think risks to tariffs
Speaker 3: are now in both directions.
Speaker 1: Right.
Speaker 3: Trump has said he's giving a ninety day reprieve to
Speaker 3: countries to give them a chance to come to the
Speaker 3: US with concessions. We've heard Treasury Secretary Scott Bessen's over
Speaker 3: the last few days talking about how the current tariff
Speaker 3: rate on China isn't sustainable and President Trump saying he'd
Speaker 3: be open to significantly reducing it. If tariffs go up,
Speaker 3: well that's going to be a bigger blow to US
Speaker 3: growth and to global growth. If tariffs come down, well
Speaker 3: that's going to be a smaller blow. Why do we
Speaker 3: think that some substantial tariffs are going to stay in
Speaker 3: place even if they're not at exactly the current level. Well,
Speaker 3: a couple of reasons. The first is that Trump is
Speaker 3: serious about the idea that global trade needs to be rebalanced, right,
Speaker 3: and you can't rebalance global trade with temporary tariffs. The
Speaker 3: second reason is that Trump has identified US debts as
Speaker 3: a big problem, and he wants to cut taxes to
Speaker 3: boost US economic dynamism, and he needs to find some
Speaker 3: revenue to offset those tax cuts and to keep US
Speaker 3: debt on a sustainable trajectory. Now, how he wants to
Speaker 3: do that is by raising tariff revenue. And once again,
Speaker 3: you can't raise tariff revenue with temporary tariffs, right if
Speaker 3: you want to be raising tariff revenue, not just right now,
Speaker 3: but into twenty twenty six, twenty twenty seven, twenty twenty eight,
Speaker 3: while these tariffs need to stay in place.
Speaker 2: After I spoke with end the Current this afternoon, he
Speaker 2: had to go back to covering the IMF meetings, But
Speaker 2: before he left, I asked him what we could expect
Speaker 2: from the rest of this week. Are there any trade
Speaker 2: deals being negotiated?
Speaker 3: Right?
Speaker 2: Now at the IMF meeting.
Speaker 1: Yes, the Treasury delegation, we'll be meeting with lots of
Speaker 1: countries who are here, and the Treasure sector has said
Speaker 1: they will be meeting delegations. Some of the officials here,
Speaker 1: for example, Indian delegation earlier today spoke about that they're
Speaker 1: here to talk business with the US, and we know
Speaker 1: Japan has advanced in that process too. Now. I don't
Speaker 1: expect there will be deals announced per se, but yes,
Speaker 1: there are meetings happening with Treasury, with the Trade represent Office,
Speaker 1: with Commerce are all sitting down. They're huddling their swopping notes.
Speaker 1: I doubt we'll get major deals like announced and signed here,
Speaker 1: but it's part of the process.
Speaker 2: This is the big take from Bloomberg News. I'm Sarah.
Speaker 2: This episode was produced by Julia Press with support from
Speaker 2: Rachel Lewis Krisky. It was edited by Chris Anstey and
Speaker 2: by our senior producer Naomi Shaven and Deputy Executive producer
Speaker 2: Julia Weaver. It was fact checked by our editorial team
Speaker 2: and mixed and sound designed by Alex Sugia. Our senior
Speaker 2: editor is Elizabeth Ponso. Our executive producer is Nicole Beamster.
Speaker 2: Bor Sage Bauman is Bloomberg's head of podcasts. If you
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Speaker 2: Big Take wherever you listen to podcasts. It helps people
Speaker 2: find the show. Thanks for listening, We'll be back tomorrow