Page 19 - Policy & Economic Report - July 2025

POLICY AND ECONOMIC
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American economies face mounting inflationary pressures as higher fuel import costs raise production
expenses and household energy bills. Countries that have invested significantly in renewable energy
generation are expected to experience relatively lower exposure to these shocks, highlighting the
importance of energy diversification in enhancing economic resilience.

The IMF also notes that countries with large current account deficits and greater reliance on international
capital markets remain particularly vulnerable to shifts in global financial conditions. Rising investor risk
aversion has increased borrowing costs and reduced access to external financing for several economies,
placing additional pressure on fiscal balances and investment. Even some energy-exporting economies
with weaker macroeconomic fundamentals may find it difficult to fully benefit from higher commodity
prices if financing conditions continue to tighten.

While the impact on economic growth varies considerably across countries, the effects on inflation are far
more uniform. Higher oil prices, transportation costs, food prices and industrial input costs are expected
to increase inflation across almost all economies. The IMF therefore emphasises that maintaining credible
monetary policy frameworks, preserving fiscal discipline and providing targeted support to vulnerable
households are critical for managing the inflationary consequences of geopolitical shocks. Rather than
broad-based fuel or food subsidies, governments are encouraged to prioritise well-targeted social
protection measures while preserving fiscal sustainability.

The report underscores a broader policy lesson that extends beyond the Western Hemisphere. As
geopolitical fragmentation becomes more frequent, countries with diversified energy sources, stronger
macroeconomic institutions, credible policy frameworks and greater fiscal buffers are likely to be better
positioned to absorb external shocks. Conversely, economies that remain highly dependent on imported
energy, tourism revenues or external financing are expected to experience greater economic volatility
during periods of heightened geopolitical uncertainty.

4. Trade Cooperation Must Adapt to an Era of Geopolitical Rivalry – IMF

The rapid rise of geopolitical rivalry is fundamentally reshaping the global trading system, challenging
many of the principles that underpinned international trade over the past seven decades. According to
the International Monetary Fund (IMF), governments are increasingly using tariffs, export controls,
investment restrictions and industrial policies to pursue strategic and national security objectives rather
than purely economic goals. This shift has blurred the distinction between economic policy and
geopolitics, giving rise to a new era of geoeconomics, in which trade has become an instrument of
strategic competition as well as economic development.

For decades, the multilateral trading system established under the General Agreement on Tariffs and
Trade (GATT)and later the World Trade Organization (WTO) was designed on the assumption that
countries would cooperate primarily to improve economic welfare. However, growing strategic rivalry—
particularly between the United States and China—has altered this framework. Governments are now
increasingly concerned with relative economic and technological power, encouraging policies aimed not

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