The global economy is performing better than anticipated despite facing prolonged uncertainty and lackluster medium-term growth prospects, according to the head of the IMF. International Monetary Fund Managing Director Kristalina Georgieva stated that the world economy is surpassing expectations but falling short of necessary levels. She mentioned that the IMF foresees a slight slowdown in global growth for this year and the next, supported by improved conditions in the United States and some other advanced, emerging, and developing countries.
Georgieva’s comments precede the upcoming gathering of finance ministers and central bank governors at the World Bank and IMF in Washington. Trade is expected to be a significant focus at the annual meetings following US President Donald Trump’s imposition of extensive tariffs earlier this year.
Georgieva highlighted that the world economy has managed to withstand pressures from various shocks, attributing this resilience to enhanced policy fundamentals, private sector adaptability, lower-than-anticipated tariffs, and favorable financial conditions. She emphasized that the world has so far averted a full-blown trade war escalation.
While the US tariff rate has decreased from 23 percent in April to 17.5 percent currently, the US effective tariff rate of approximately 10 percent remains considerably higher than other regions. Georgieva cautioned that the true impact of these tariffs is yet to fully materialize, underscoring that the global economy’s resilience has not been completely tested.
Despite these challenges, the IMF maintains its projection of global growth hovering around three percent in the medium term, aligning with previous forecasts but below pre-Covid-19 levels of 3.7 percent. Georgieva noted shifting global growth trends, with China’s gradual slowdown and India emerging as a significant growth driver.
To enhance sluggish growth prospects, Georgieva urged countries to promptly boost output sustainably, fortify fiscal reserves, and address excessive trade imbalances. The IMF’s recommendations varied by region, with Asia advised to enhance internal trade and bolster the service sector and financial access. Successful implementation could elevate economic output by up to 1.8 percent in the long run.
In Africa, countries were encouraged to enact business-friendly reforms and advance the Continental Free Trade Area, potentially increasing real GDP per capita by over 10 percent. Georgieva emphasized the substantial benefits that could arise from this region.
Georgieva delivered strong criticism towards Europe, which has grappled with economic growth challenges compared to the US. To enhance competition in the EU, she proposed the appointment of a new “single market czar” to spearhead reforms, aiming to streamline the EU’s structure and empower necessary changes, particularly in financial services and energy integration.
Georgieva called on the US to address its federal deficit and promote household savings, while reiterating the IMF’s persistent call for fiscal reforms in China to boost private consumption and reduce reliance on industrial policy for growth.