The International Monetary Fund (IMF) has warned that Donald Trump's tariff threats over Greenland risk triggering a 'spiral of escalation' that would damage the world economy and lead to a sharp sell-off in financial markets. In an update to its World Economic Outlook, the Washington-based fund said a renewed eruption in trade tensions was among the biggest risks to global growth in 2026.
Pierre-Olivier Gourinchas, the IMF's chief economist, said a 'spiral of escalation' between the US and Europe would have a 'material impact' that would inflict pain on households on both sides of the Atlantic. 'We all know there are no winners in a trade war and that's the thing to remember,' he said, calling for an 'amicable solution' to the current situation.
The IMF's forecasts, finalised in December, project global growth of 3.3% in 2026 and 3.2% in 2027, similar to an estimated 3.3% in 2025, supported by surging investment in artificial intelligence. However, the fund noted that these projections were based on a fall in US tariff rates in 2026 and 2027, and that rising geopolitical tensions could blow them off course.
Gourinchas warned that a tit-for-tat trade war could lead to a 'repricing' by financial markets, which have reached record highs amid a massive influx of cash into the US technology sector. 'This volatility is bad for business decisions; it's bad for investment, it's bad for consumption, it leads to uncertainty,' he added.
The IMF upgraded its US growth forecast for 2026 to 2.4%, up from 2.1% in October, reflecting the technology boom and limited impact from trade wars so far. For the UK, the fund left its 2026 and 2027 forecasts unchanged at 1.3% and 1.5% respectively, but upgraded 2025 growth from 1.3% to 1.4%. Chancellor Rachel Reeves said the forecasts showed 2026 was 'the year the country turns a corner'.
