The International Monetary Fund (IMF) has cautioned that Donald Trump’s tariff threats over Greenland risk triggering a “spiral of escalation” that could severely damage the world economy and lead to a sharp sell-off in financial markets.
In an update following Trump’s threats to impose tariffs on NATO allies opposed to his ambition to take over the Arctic territory from Denmark, the Washington-based fund said a renewed eruption in trade tensions was among the biggest risks to global growth in 2026.
IMF chief economist Pierre-Olivier Gourinchas warned that 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.
The intervention comes as world leaders prepare to gather in Davos, Switzerland, for the annual World Economic Forum meeting, seen as a critical moment to salvage international cooperation. The IMF managing director, Kristalina Georgieva, is expected to hold meetings in Davos amid efforts to dial down tensions with Washington.
In an update of its World Economic Outlook report, the IMF said global growth was projected to remain resilient at 3.3% in 2026 and 3.2% in 2027, similar to an estimated 3.3% growth rate in 2025. However, the fund warned that its forecasts were based on a fall in US tariff rates in 2026 and 2027, and that rising geopolitical tensions and a full-blown trade war could blow its forecasts off course.
Gourinchas said the shock of 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 UK’s growth projection for next year puts it behind only the US and Canada of its G7 counterparts, with Chancellor Rachel Reeves saying the forecasts showed 2026 was “the year the country turns a corner”. However, the IMF warned that rising geopolitical tensions and a trade war would threaten these projections.