The International Monetary Fund (IMF) is poised to forecast steady global economic growth and ongoing disinflation in its updated World Economic Outlook, scheduled for release on January 17. This announcement was made by IMF Managing Director Kristalina Georgieva during a recent press briefing.
U.S. economy outperforming expectations
Georgieva noted that the U.S. economy is performing “quite a bit better” than anticipated, Reuters reported. However, she highlighted significant uncertainty surrounding the trade policies of President-elect Donald Trump’s administration, which is contributing to challenges for the global economy and pushing long-term interest rates higher.
Fed’s approach to interest rates
With inflation approaching the U.S. Federal Reserve’s target and evidence of a stable labor market, Georgieva indicated that the Fed has the flexibility to await additional data before making further interest rate cuts. She emphasized that, overall, interest rates are projected to remain “somewhat higher for quite some time.”
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Upcoming IMF global outlook update
The IMF’s forthcoming update to its global outlook on January 17 comes just days prior to Trump assuming office. Georgieva’s remarks serve as the initial indication of the IMF’s evolving global outlook for this year, yet she refrained from providing detailed projections.
In the previous October report, the IMF had increased its 2024 economic growth forecasts for the U.S., Brazil, and the United Kingdom, while reducing projections for China, Japan, and the euro zone. This adjustment was attributed to risks associated with potential new trade conflicts, armed disputes, and stringent monetary policies.
Despite these changes, the IMF maintained its 2024 global growth forecast at 3.2 percent, as projected in July, but reduced the 2025 global forecast by one-tenth of a percentage point. Georgieva warned that global medium-term economic growth is anticipated to decline to 3.1 percent in five years, significantly below pre-pandemic trends.
Global interest in U.S. policy directions
“Not surprisingly, given the size and role of the U.S. economy, there is keen interest globally in the policy directions of the incoming administration, in particular on tariffs, taxes, deregulation, and government efficiency,” Georgieva remarked. She pointed out that this uncertainty particularly affects trade policy, adding to the challenges facing the global economy. This is especially true for countries and regions more integrated into global supply chains, medium-sized economies, and the Asian region.
Georgieva observed that it is “very unusual” for such uncertainty to manifest in higher long-term interest rates while short-term rates have decreased, a trend not commonly seen in recent history.
Regional IMF economic growth trends
The IMF anticipates varied trends across different regions. In the European Union, growth is expected to stagnate somewhat, while India may see a slight weakening. Brazil is also facing a rise in inflation, according to Georgieva.
In China, the world’s second-largest economy, the IMF is witnessing deflationary pressures and persistent challenges related to domestic demand.
Impact on lower-income countries
Despite ongoing reform efforts, lower-income countries are particularly vulnerable, as any new shocks could adversely impact them “quite negatively,” Georgieva stated. She noted that it is significant that the rise in interest rates aimed at curbing inflation has not driven the global economy into recession. However, the varying trends in headline inflation mean that central bankers must closely monitor local data.
Georgieva warned that a strong U.S. dollar could potentially lead to increased funding costs for emerging market economies, especially for low-income nations.
Need for fiscal responsibility
Most countries need to reduce fiscal spending following high expenditures during the COVID-19 pandemic and implement reforms to foster sustainable growth. Georgieva emphasized that in many cases, this can be achieved while safeguarding growth prospects. “Countries cannot borrow their way out. They can only grow out of this problem,” she remarked, stressing that the medium-term growth outlook for the world is at its lowest in decades.
