IMF chief sees steady world growth in 2025, continuing disinflation
The International Monetary Fund will forecast steady global growth and continuing disinflation when it releases its World Economic Outlook on Jan. 17, IMF Managing Director Kristalina Georgieva said.
Georgieva said the US economy was doing “quite a bit better” than expected. However, there was high uncertainty around the trade policies of the administration of President-elect Donald Trump, which was adding to headwinds facing the global economy and driving long-term interest rates higher.
With inflation moving closer to the US Federal Reserve’s target and data showing a stable labor market, she said the Fed could afford to wait for more data before undertaking further interest rate cuts. Overall, interest rates were expected to stay “somewhat higher for quite some time,” she said.
The IMF will release an update to its global outlook on Jan. 17, just days before Trump takes office. Georgieva’s comments are the first indication of the IMF’s outlook this year.
“Not surprisingly, given the size and role of the US economy, there is keen interest globally in the policy directions of the incoming administration, particularly on tariffs, taxes, deregulation, and government efficiency,” Georgieva said.
“This uncertainty is particularly high around the path for trade policy going forward, adding to the global economy’s headwinds, especially for countries and regions that are more integrated into global supply chains, medium-sized economies, (and) Asia as a region.”
Georgieva said it was “very unusual” that this uncertainty was expressed in higher long-term interest rates even though short-term interest rates had gone down, a trend not seen in recent history.
The IMF saw divergent trends in different regions, with growth expected to stall somewhat in the EU and weaken “a little” in India.
Meanwhile, Georgieva said Brazil was facing slightly higher inflation.
In China, the world’s second-largest economy after the US, the IMF was seeing deflationary pressure and ongoing challenges with domestic demand, she said.
Georgieva said it was notable that higher interest rates needed to combat inflation had not pushed the global economy into recession. Still, headline inflation developments were divergent, meaning central bankers must carefully monitor local data.
She said the strong US dollar could increase funding costs for emerging-market economies and predominantly low-income countries.
Most countries needed to cut fiscal spending after high outlays during the COVID pandemic and adopt reforms to boost growth durably, she said, adding that this could be done in most cases while protecting their growth prospects.
“Countries cannot borrow their way out. They can only grow out of this problem,” she said, noting that the medium-growth prospects for the world were the lowest seen in decades.