- Higher interest rates persist, affecting global economic stability.
- Diverging regional growth trends highlight uneven recovery trajectories.
- The IMF warns of rising financing costs for emerging economies.
WASHINGTON: The International Monetary Fund (IMF) is expected to forecast stable global growth and continued disinflation in its updated World Economic Outlook, scheduled for release on January 17, the IMF Managing Director said on Friday. Kristalina Georgieva.
According to The News, Georgieva added that the U.S. economy was performing “much better” than expected, but noted considerable uncertainty surrounding the trade policies of President-elect Donald Trump’s administration. This uncertainty, she added, contributes to challenges in the global economy and pushes long-term interest rates higher.
With inflation moving closer to the US Federal Reserve’s target and data showing a stable labor market, the Fed could afford to wait for more data before undertaking further interest rate cuts, a she declared. Overall, interest rates are expected to remain “somewhat higher for a while,” she said.
The IMF will release an updated global outlook on January 17, just days before Trump takes office. Georgieva’s comments are the first indication this year of changes in the IMF’s global outlook, but she gave no detailed projections.
In October, the IMF raised its economic growth forecasts for 2024 for the United States, Brazil and Britain, but lowered them for China, Japan and the euro zone, citing risks from new potential trade wars, armed conflicts and restrictive monetary policy.
At the time, it left its global growth forecast for 2024 unchanged at the 3.2% projected in July, and lowered its global forecast of 3.2% in 2025 by a tenth of a percentage point, warning that medium-term global growth would moderate. at 3.1% in five years, well below its pre-pandemic trend.
“It is not surprising, given the size and role of the US economy, that the policy directions of the new administration are attracting keen interest globally, particularly on tariffs, taxes, deregulation and government efficiency,” Georgieva said. “This uncertainty is particularly great about the path forward for trade policy in the future, adding to the headwinds facing the global economy, particularly for countries and regions that are more integrated into trade chains. global supply chains, mid-sized economies and/or Asia as a region. .”
Georgieva said it was “very unusual” that this uncertainty translated into a rise in long-term interest rates, even though short-term interest rates had fallen, a trend not seen in recent history .
The IMF found divergent trends in different regions, with growth expected to stagnate somewhat in the European Union and weaken “a bit” in India, while Brazil faces slightly higher inflation, said Georgieva.
In China, the world’s second-largest economy after the United States, the IMF sees deflationary pressures and persistent challenges to domestic demand, she said.
Low-income countries, despite their reform efforts, find themselves in a situation where any new shock would hit them “quite negatively”, she said.
Georgieva said it was remarkable that the interest rate hike needed to combat inflation had not pushed the global economy into recession, but that developments in headline inflation were diverging, which meant central bankers had to carefully monitor local data.
The strong U.S. dollar could potentially lead to higher financing costs for emerging market economies and particularly low-income countries, she said.
Most countries had to reduce fiscal spending after high spending during the Covid pandemic and adopt reforms to boost growth sustainably, she said, adding that in most cases this could be done while protecting their growth prospects.
“Countries cannot borrow to get by. They can only get out of this problem,” she said, adding that the average growth outlook for the world was the lowest seen in decades.