Georgieva said the U.S. economy is doing "much better" than expected, although there is a lot of uncertainty surrounding the trade policies of President-elect Donald Trump's administration, which are increasing headwinds to the global economy and raising long-term interest rates.
"With inflation approaching the U.S. Federal Reserve's target and data showing a robust labor market, the Fed can afford to wait for more data before taking further rate cuts," she said.
"Overall, interest rates are expected to remain somewhat higher for some time," she said.
The IMF will release an update to its global forecasts on January 17, just days before Trump's inauguration. Georgieva's comments are the first indication this year of developments in the IMF's global outlook, but she gave no detailed projections.
In October, the IMF raised its 2024 economic growth forecasts for the US, Brazil and the UK, but lowered them for China, Japan and the eurozone, citing the risks of potential new trade wars, armed conflicts and tight monetary policy.
The organization then left its 2024 global growth forecast unchanged at the 3.2% level projected in July and lowered its global growth forecast of 3.2% in 2025 by one-tenth of a percentage point, warning that global medium-term growth would weaken to 3.1% in five years, well below the pre-pandemic trend.
"Not surprisingly, given the size and role of the U.S. economy, there is a great deal of global interest in the policy directions of the incoming administration, particularly with respect to tariffs, taxes, deregulation, and government efficiency. This uncertainty is particularly high around the path of trade policy going forward, which contributes to the headwinds facing the global economy, especially for countries and regions that are more integrated into global supply chains, middle economies, Asia as a region," Georgieva added.
She said it was "very unusual" for this uncertainty to translate into higher long-term interest rates, even though short-term interest rates have fallen - a trend not seen in recent history.
"The IMF sees divergent trends across regions, with growth expected to slow somewhat in the European Union and weaken 'a little' in India, while Brazil faces slightly higher inflation," Georgieva said.
"In China, the world's second-largest economy after the United States, the IMF is seeing deflationary pressures and ongoing domestic demand challenges. Lower-income countries, despite reform efforts, are in a position where any new shock would affect them quite negatively," she added.
Georgieva noted that the higher interest rates needed to fight inflation have not pushed the global economy into recession, but developments in headline inflation have been different, meaning central bankers need to keep a close eye on local data.
She said a strong US dollar could potentially lead to higher financing costs for emerging market economies and especially low-income countries.
Most countries have had to cut their fiscal spending in the wake of high spending during the COVID pandemic and adopt reforms to permanently boost growth, she said, adding that in most cases this can be done while protecting their growth prospects.
"Countries cannot get out of the situation with borrowing. They can only get out of this problem," Georgieva said, noting that the outlook for average growth in the world is the lowest in decades. | BGNES
