Trump turbulence endangering global ‘soft landing’, BIS warns
The economic convulsions wrought by Donald Trump’s volatile tariff announcements and swingeing public sector job cuts are threatening hopes of a soft landing after years of inflation, the Bank of International Settlements (BIS) has said.
The BIS, known widely as the ‘central bank of central banks’, warned in its latest global report that while it expects the world’s major economies to avoid recession this year, Donald Trump’s tariffs have bred unusually high market volatility.
Central bankers across developed economies have been holding onto hopes that they have been able to orchestrate what is known as a ‘soft landing’, whereby a period of embedded inflation ends without being followed by a recession.
Governor of the Bank of England Andrew Bailey and his American counterpart Jay Powell have both previously declared that such a landing across the US and UK economies was in sight.
But speaking alongside the publication of the BIS’s quarterly outlook, Frank Smets, deputy head of monetary policy at the BIS, said Trump’s capricious approach to trade has jeopardised those hopes of major economies avoiding a downturn.
“Policy uncertainty on tariffs, [US] fiscal policy, immigration and regulation… work like a negative demand shock. They would have negative effects on spending, investment and we see some signs of that.”
“If tariffs are implemented – and some have been – then the negative demand shocks can become supply shocks and give rise to inflationary pressure,” he added.
Donald Trump’s first two months in office have been characterised by the US applying sudden tariffs on some of its largest trading partners.
He has rowed back on some at the last minute and carved out specific industries to others, but gone ahead with several punishing duties on imports from the likes of Canada, Mexico and China.
The policies – and their inconsistent, even erratic – application have sparked frenzied speculation that the US might be heading for a recession, and sent US stocks plunging.
The tech-oriented Nasdaq has fallen over five per cent in the last week as investors pared back bets on US growth and sought safe haven alternatives. Yields on US Treasuries fell as much as 10 basis points on Monday.
Hyun Song Shin, economic adviser and head of research at the BIS, said: “Tariffs wrapped in uncertainty are going to be doubly unhelpful.”
A host of economists and analysts have cautioned that bearish sentiment in markets could soon leak into the real economy through a fall in business and consumer confidence.
Goldman Sachs slashed its own outlook for the US economy citing the negative impact from US trade policy.
And in comments made before the stock market rout, Shin said that consumer spending, business investment and hiring decisions all required certainty and stability. These key economic drivers have “been undermined by the policy uncertainty, by tariffs and the fiscal [situation]”, he added.