- Gold and silver rise but stocks fall amid mounting global tensions
The International Monetary Fund (IMF) has sounded the alarm over the damaging impact of trade flare-ups as Donald Trump’s threat to take over Greenland stokes global tensions.
Mr Trump plans to impose tariffs on countries including the UK that have rallied around Greenland and Denmark, which rules the territory.
In response, European leaders are reported to be considering a ‘bazooka’ of measures including restrictions on US firms in the EU market.
The IMF warned of the damaging impact of further tariffs in its latest World Economic Outlook report.
It said that risks to its forecast – compiled before the crisis over Greenland erupted in the last few days – were ‘tilted to the downside’.
‘Trade tensions could flare up, prolonging uncertainty and weighing more heavily on activity,’ the report said.
‘Domestic political tensions or geopolitical tensions could erupt, introducing new layers of uncertainty and disrupting the global economy through their impact on financial markets, supply chains, and commodity prices.’
The IMF has warned ‘trade tensions could flare up’ amid the row over Greenland
It came as markets wobbled over the row – with safe-haven assets gold and silver hitting new highs and stock markets lower.
The IMF forecast – based on global policies as they stood in December and assuming no further ratcheting up in trade tensions – actually increased the global growth outlook for this year from 3.1 per cent to 3.3 per cent.
But it noted that ‘the fragile balance of trade policy stances’ underlying its predictions ‘could be disrupted’ with the potential for additional tariffs on certain sectors to ‘create supply bottlenecks and impose an outsize impact on economic activity and prices’.
And it warned of more countries adopting a ‘protectionist’ stance especially if ‘diversion and rerouting become disruptive’ – a reference to China diverting cheap goods that have been blocked from the US market by high tariffs to flood Europe instead.
The report focused on the possibility of trade flare-ups in areas of tension that were seen before the Greenland row.
It said: ‘A significant escalation in geopolitical tensions, particularly in the Middle East or Ukraine but possibly also in Asia and Latin America, could trigger substantial negative supply shocks.
‘Disruption to major shipping routes, critical supply chains, and air travel could occur, leading to delays and increased costs. If key infrastructure were damaged, resulting supply constraints could drive commodity prices higher.’
Neil Wilson, UK investor strategist at Saxo, said: ‘Gold surged to a record high and stocks wobbled as fresh worries about Greenland surfaced over the weekend, with the US threatened several European countries with tariffs in response to them pushing back against White House demands for the island.
‘The threat by Trump risks reigniting a trade war with Europe, with the EU looking at retaliatory tariffs. Quite apart from blowing up NATO, it could upset the EU-US trade deal reached in August. Near term clearly uncertainty is elevated, which means more volatility.’
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