IMF chief says global economy faces heightened uncertainty on US trade policy

Washington: International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned that global economy in 2025 faces heightened uncertainty due to economic policies, particularly the directions of US trade policy.

“Not surprisingly, given the size and role of US economy, there is keen interest globally in the policy directions of the income administration, in particular, on tariffs, taxes, deregulation and government efficiency,” Georgieva said during a media roundtable at the IMF’s headquarters in Washington, D.C.

“This uncertainty is particularly high around the path for trade policy going forward, adding to the headwinds facing the global economy, especially for countries and regions that are more integrated in global supply chains,” said the IMF chief.

Georgieva noted that “uncertainty is expressed globally through higher long term interest rates,” even though short term interest rates have gone down, calling it “very unusual,” Xinhua news agency reported.

The IMF chief also pointed out a shift in market expectations, which leads to knock-on effects on asset prices and on exchange rates. A strong dollar, both against advanced economy currencies and against emerging market currencies, could potentially “fuel higher funding costs for emerging market economies, especially for low income countries.”

She urged policymakers to tackle the low-growth, high-debt conundrum. “Countries do need to continue on a path to price stability, they do need to pursue gradual fiscal consolidation, but they also urgently need to adopt reforms that are pro-growth, and boost growth in a durable way,” she said.

“Short term rates are going down. Long term yield is going up. Countries cannot borrow their way out of it. They can only grow out of this problem,” she added.

The IMF is set to release its World Economic Outlook (WEO) Update on Friday, January 17.

IANS