Trump’s policies are causing more economic uncertainties than COVID-19 did

The global economy is facing more uncertainty under Trump than it did during COVID-19, according to European Central Bank (ECB) Vice President Luis de Guindos.

Speaking to The Sunday Times, Luis said, “We need to consider the uncertainty of the current environment, which is even higher than it was during the pandemic.”

Luis made it clear that the new U.S. administration is not interested in multilateralism—the global cooperation that kept economies somewhat stable during the last crisis.

“What we’re seeing is that the new US administration isn’t very open to continuing with multilateralism, which is about cooperation across jurisdictions and finding common solutions for common problems. This is a very important change, and a big source of uncertainty.”

Trade war threats disrupt global markets

With Trump refusing to work with international partners, central banks are struggling to predict inflation, growth, and interest rate movements. ECB President Christine Lagarde warned last Wednesday that a trade war with China, Canada, and the European Union will definitely hurt the global economy, but did she even have to?

Meanwhile, Jose Luis Escriva, speaking to Bloomberg TV, said inflation and economic growth are now impossible to predict because of the volatile policies coming from Washington. ECB forecasts show the eurozone’s growth at just 0.9% this year, reflecting widespread economic stagnation.

Consumer confidence is dropping. Luis said, “Real wages have increased, inflation is declining, interest rates are coming down and financing conditions are better. But still, the reality is that consumption is not picking up.” People are holding back on spending, worried about what’s coming next. “They also consider what might happen with the economy over the medium term, which is clouded in uncertainty. The possibility of a trade war or wider geopolitical conflict has an impact on consumer confidence.”

Meanwhile, European governments are spending more on defense, but the long-term effects are unclear. Luis acknowledged that the spending might boost economic growth, but added, “It will likely be positive for growth and have a limited impact on inflation.”

Central banks hold rates as uncertainty dominates

Central banks worldwide are on edge, waiting to see the full impact of Trump’s policies. The Federal Reserve is expected to keep rates steady at its next meeting, but markets are looking for signals from Chair Jerome Powell. Investors predict two rate cuts this year, starting in September, but Powell has said, “The Fed doesn’t need to be in a hurry to cut rates.”

At the same time, Wall Street market volatility, weak growth, and declining consumer confidence are raising concerns about a possible recession. Trump’s trade war is making things worse, and the Fed is unsure if it should step in.

The Bank of Japan is also expected to hold rates steady as it assesses the impact of its January rate hike. Inflation and yen weakness are still major concerns, and economists are split on whether a rate increase will come in May or July.

Other central banks are taking a cautious approach. Indonesia is expected to keep interest rates unchanged as it tries to prevent capital outflows. In China, banks are likely to hold the 1-year and 5-year loan prime rates steady, as authorities wait for more economic data. Taiwan’s central bank is also set to keep rates at 2% for a fourth straight meeting.

The Bank of England is another institution playing it safe. Rates are likely to stay at 4.5%, even after a surprise GDP contraction. With geopolitical tensions, inflation concerns, and uncertainty over the Labour government’s budget, policymakers are hesitant to cut rates too soon. Some members of the Monetary Policy Committee support immediate cuts, but others want to wait.

The Bank of Russia is also feeling the effects. Inflation surged past 10% in February, and interest rates remain at a record 21%. Officials are expected to keep rates high for now.

In Argentina, Trump’s policies are complicating things further. Since taking office in December 2023, President Javier Milei has cut interest rates 10 times, with another cut likely this week. His aggressive strategy is aimed at slowing inflation, but the long-term effects are still quite unclear.

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