Extreme uncertainty sends tremors through central banks and multilateral organizations

The ramping up of global trade tensions has ceased to be a peripheral concern and has become a central issue for the decision-making boards of central banks and multilateral organizations. What began as a threat by the Trump administration quickly turned into an escalation of levies between the U.S. and China that has led to a spiral that could well change the world order: a trade war with systemic effects, capable of altering capital flows, supply chains, and inflationary forecasts.

Faced with this new scenario, institutions such as the International Monetary Fund (IMF), the World Bank, the World Trade Organization (WTO) and central banks have begun to revise their growth projections, and also to redesign policies and plans that seemed untouchable until a few weeks ago. The international economic playbook now has less predictable rules, making it necessary to recalibrate strategies in real time. Even the WTO, traditionally distanced from monetary dynamics, is warning of an increasingly fragmented environment that threatens to blur the frameworks of global cooperation and to undermine the exchange of goods and economic growth.

In a prelude to the meeting to be held by the IMF next week in which macroeconomic forecasts will also be revised, the organization announced on April 17 that there would be a wave of “significant downgrades” in the growth projections of many countries. For the time being, the fund rules out a recession, but does insist there will be hikes in inflation forecasts.

“Uncertainty over trade policies has reached unprecedented levels,” explained the managing director of the IMF, Kristalina Georgieva, in a speech foreshadowing the organization’s official position. The Bulgarian politician and economist warned that prolonged uncertainty raises the risk of tensions in financial markets, as has been seen with the dollar and U.S. Treasury bonds. “These shifts should be taken as a warning,” she said. “If financial conditions get worse, everyone suffers.” She added that the longer the uncertainty persists, the greater the cost to the global economy, although she avoided any specific mention of U.S. president Donald Trump.

Speaking at the organization’s headquarters in Washington, World Bank president Ajay Banga recently warned that greater uncertainty and economic instability will weigh down the world economy. “Trade tension is causing economic agents to be more cautious, which can slow down investments and the purchasing decisions of companies and households,” he said after calling on countries to sit down and negotiate as soon as possible to establish a clear and lasting trade framework.

The situation is alarming and may yet escalate further. After declaring a universal general tariff of 10% and a melting pot of additional rates for countries with which the U.S. has a larger trade deficit, Trump announced a 90-day pause in order to negotiate with nearly 70 governments and reach an agreed solution. The only one not spared from the armistice is China, which has retaliated in kind.

So far, meetings with the other countries can be counted on the fingers of one hand. Spain’s Economy Minister Carlos Cuerpo has just met with his U.S. counterpart, Treasury Secretary Scott Bessent. There was also a meeting between Japan and the U.S., in which no agreement was reached. And April 17 saw Trump hobnob with Italian Prime Minister Giorgia Meloni — the first meeting with an EU leader since the beginning of the trade offensive, with a vague promise of some kind of deal down the line.

With no clear rules and constantly shifting policies, multilateral organizations and central banks are walking on eggshells, adopting a wait-and-see approach, though they have already begun to project scenarios and redirect monetary policy.

Monetary policy

The U.S. protectionist stance has prompted the European Central Bank (ECB) to cut rates for the sixth consecutive time, to 2.25%, in an attempt to counteract the negative economic impact of the tariffs. It is a clear signal that the eurozone is facing a period of stagnant growth, in line with the IMF’s general forecasts. The president of the organization, Christine Lagarde, has acknowledged that the overall picture is being shaped by “exceptional uncertainty” and that the increase in tariff disputes threatens to further dampen exports, one of the main drivers of the European economy, so that “growth prospects have deteriorated.”

The IMF’s glum tone has overshadowed any positive impact that the rate cut might have had on the stock markets. Contrary to the typical response to a more lax monetary policy, all markets fell. The Ibex 35 closed 0.19% down, the German Dax fell by 0.53%, while the French stock market and the Euro Stoxx 50 fell by more than 0.6%. The Italian Mib, for its part, limited losses to 0.24%.

Although the rate cut has not boosted the stock markets, it has reinforced the difference between the monetary policies of Europe and the U.S., where the Federal Reserve is being much more cautious with rate cuts. Its chairman, Jerome Powell, has just insisted on the inflationary risks of the tariffs imposed by the White House and has shown himself in favor of waiting for greater “clarity” from Trump before moving the price of money. His words have been taken by analysts as confirmation that the entity will not make a move at the next meeting scheduled for May and that a 0.25 point cut will not happen until June at the earliest.

While the ECB has cut rates by 1.75 percentage points since last June, the Fed has only applied a one percentage point cut since September and has maintained a more contained stance since December. This divergence is mainly due to the fact that Trump’s protectionist proposals bring with them an inflationary risk. By contrast, Europe is grappling with the impact of the war in Ukraine and a greater dependence on foreign trade. The recent strengthening of the euro and falling oil prices are also contributing to a slowdown in inflation in the eurozone. With the tariffs already imposed, the bloc faces significant levies, such as 25% on steel, aluminum, and the auto industry.

The WTO, which regulates trade rules, has also reassessed the economic landscape. The institution chaired by Nigeria’s Ngozi Okonjo-Iweala has cut its growth forecast for trade in goods by almost three points, from an initial increase of 2.7% to a fall of 0.2% by 2025. This is based on the current scenario. In other words, if the tariff offensive intensifies, the decline would be 1.5% this year and the global economy could fall by 7% in the long term.

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