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The International Monetary Fund has issued a stern warning regarding the potential global economic repercussions stemming from tensions over Greenland. This “spiral of escalation” between the U.S. and Europe could derail international growth and trigger a significant sell-off in financial markets.
As gold and silver prices reach unprecedented levels and stock markets experience declines, IMF’s chief economist, Pierre-Olivier Gourinchas, highlighted the severity of the situation. He emphasized that the current standoff poses a “major risk” with the potential to have a “very sizeable impact” on the global economy.
Such tensions could potentially shave 0.3 percent off global growth, a concerning prospect for the fragile economic recovery. Gourinchas further cautioned that an escalation could lead to retaliatory policies, which would exacerbate the economic downturn.
He added: ‘If we were to enter a phase in which there were escalation and tit for tat policy that would certainly have an even more adverse effect on the economy.’
That could even mean a ‘repricing by markets’ – meaning sharp falls in stocks.
Mr Gourinchas added: ‘Obviously geopolitical risks and trade tensions are among the most pressing risks that the global economy is facing.’
On the tensions over Greenland, he said: ‘This is a major risk. This is something that could materially impact growth if we have higher levels of tariffs, if we have higher levels of geopolitical tensions – and that’s something we are monitoring carefully.’
Mr Gourinchas said if tariffs imposed by the US were followed by retaliation by Europe it would have a ‘very sizeable impact on the global economy’.
In a similar scenario modelled by the IMF last October, such a situation would knock 0.3 per cent off global growth.
Mr Gourinchas warned that the tensions threaten to hurt investment decisions and supply chains and called for a solution ‘that will keep the trading system open’.
He added: ‘There are no winners in trade wars.’
The IMF has warned ‘trade tensions could flare up’ amid the row over Greenland
Donald 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.’
It came as markets wobbled over the row – with safe-haven assets gold and silver hitting new highs and stock markets lower.
Gold rose as high as $4,692 an ounce while silver topped $94 – putting it within sight of hitting $100 an ounce for the first time.
The silver price has more than tripled since the start of last year.
‘Silver in particular has been on a flabbergasting run of late,’ said Laith Khalaf, head of investment analysis at AJ Bell. ‘It’s quite an achievement to put gold in the shade.’
While precious metal prices rose, global stock markets fell, with the FTSE 100 down 60 points at 10,175 in early trading in London.
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.’
Susannah Streeter, chief investment strategist at Wealth Club, added: ‘Trump has described tariffs as the most beautiful word in the dictionary, but these latest moves mark an ugly turn of events, given they drive a wedge through the transatlantic alliance.
‘Investors are nervous about a deeper trade war breaking out but there will still be hopes that there is room for negotiation. Memories of the 2025 TACO trade are still strong, with ‘Trump always chickening out’ of the most punishing of tariffs threats, but its clear that threatening to seize a territory from a fellow NATO country is a dramatic turn of events.
‘So, gold has hit fresh record highs on its glittering run upwards. The precious metal is holding even more allure as a safe haven as worries spread about the repercussions of the US aggressive trade and geopolitical policies. Silver has also risen sharply. It too is seen as a safer haven among investors wanting to shelter assets, but also gain exposure to demand for the industrial use of the metal.’
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