A customer shops at a Whole Foods Market grocery store in New York City, United States, December 17, 2024. /CFP
Economists from international economic organizations and financial institutions have warned about the downside risks posed to the global economy following potential policy changes with the impending US government transition.
US President-elect Donald Trump's stated fiscal and trade policies have added more uncertainty to next year's interest rate policies, with the market widely believing that this will hinder the rate cut process, wrote Singaporean newspaper Lianhe Zaobao in a recent news report.
In an outlook note, Morgan Stanley economists predict that the change in power in Washington and anticipation of hawkish trade policy is likely to weigh on the consumer spending engine in the coming years.
"The outcome of the US election is going to usher in policy changes with implications that will reverberate through the global economy," wrote Morgan Stanley's Chief Global Economist Seth Carpenter.
Carpenter said the first round of tariffs from the new administration will mostly target imports from China, followed by a gradual expansion to goods from other countries. As sellers pass on increased costs to consumers in the form of price increases, inflation is expected to pick up in the second half of 2025, leading to reduced consumer spending, which in turn affects production and employment, he added.
Goldman Sachs Research last month forecasted that the average annual global GDP growth rate for 2025 will be 2.7 percent, just slightly above the consensus forecast of economists surveyed by Bloomberg.
While the optimism towards global economic growth is partly due to the alleviation of inflation over the past two years, the US trade policies could bring economic headwinds to other regions, according to Goldman Sachs Chief Economist Jan Hatzius.
"The biggest risk is a large across-the-board tariff, which would likely hit growth hard," Hatzius wrote.
Tractor trailers entering the United States at the Pacific Highway Border Crossing in Blaine, Washington, D.C., December 18, 2024. / CFP
The Asian Development Bank's outlook report released last Wednesday maintained China's economic growth forecast but lowered the growth expectations for developing economies in the Asia-Pacific region.
Despite robust development momentum in the region, the upcoming presidency of Donald Trump and the potential changes in US trade, fiscal and immigration policies could suppress development in the Asia-Pacific area and exacerbate inflation, said the report.
Meanwhile, the Organization for Economic Co-operation and Development (OECD) has noted that the rise of trade protectionism and escalating tensions in the Middle East will pose significant downside risks to the global economic outlook.
In its most recent December outlook, the OECD forecasts that the US economic growth rate will be 2.8 percent in 2024, a drop to 2.4 percent in 2025 and a further slowdown to 2.1 percent in 2026. It highlighted factors such as reduced immigration, personal consumption and risks from escalating trade frictions with other countries.