The world economy is faring better than many had initially feared but is still falling short of what is needed to drive sustainable and inclusive global growth, according to International Monetary Fund (IMF) Managing Director Kristalina Georgieva. Speaking ahead of the IMF and World Bank’s annual meetings in Washington, Georgieva offered a cautiously optimistic assessment of the current global economic outlook.
While growth has held up in several key economies, the world economy continues to grapple with uncertainty, sluggish medium-term projections, and the lingering effects of multiple shocks over recent years.
“The world economy is doing ‘better than feared, but worse than we need,’” Georgieva told reporters in Washington on Wednesday. The IMF expects global growth to slow “only slightly this year and next,” bolstered by stronger-than-anticipated performances in the United States, as well as several other advanced and emerging markets.
Georgieva emphasized that the global economy has shown resilience in the face of what she called “multiple shocks,” including the COVID-19 pandemic, the energy crisis triggered by geopolitical tensions, and a wave of global inflation.
“Improved policy fundamentals, the adaptability of the private sector, and supportive financial conditions have helped the world economy withstand severe headwinds,” she said.
World Economy Faces Uncertainty Despite Signs of Resilience
A major theme of next week’s meetings will be global trade — a subject that continues to influence the trajectory of the world economy. Earlier this year, U.S. President Donald Trump imposed broad tariffs on numerous trading partners, fueling fears of a new trade war.
However, Georgieva said the worst-case scenario has so far been avoided, noting that the U.S. average tariff rate has fallen from 23% in April to 17.5% today. Nevertheless, she warned that the full impact of trade tensions has yet to be felt.
“The world has avoided a tit-for-tat slide into a trade war — so far,” she noted, cautioning that the global economy’s resilience is not yet fully tested.
Despite short-term gains, the medium-term outlook for the world economy remains subdued, according to the IMF. Georgieva noted that the Fund continues to project global growth around 3%, in line with earlier forecasts but well below the pre-pandemic average of 3.7%.
She highlighted a shift in global growth patterns, pointing to China’s steady economic deceleration and India’s emergence as a key driver of global growth.
“Global growth is no longer centered around a few dominant economies. It’s now being supported by a more diverse group of countries, especially in Asia,” she said.
To avoid stagnation, Georgieva called for urgent policy reforms that can lift productivity, rebuild fiscal buffers, and address imbalances in trade.
The IMF recommends that Asian economies deepen internal trade, strengthen the services sector, and improve financial access. If executed well, these policies could raise output by up to 1.8% in the long term, according to the IMF.
For African nations, the IMF urges business-friendly reforms and continued support for the African Continental Free Trade Area (AfCFTA). Georgieva stressed that real GDP per capita could increase by over 10% if the reforms are implemented.
“Gains from this region can be especially large,” she added, underscoring the long-term potential of the African economy in contributing to a more balanced world economy.
Georgieva offered tough criticism for Europe, warning that the continent’s sluggish economic performance is a growing liability for the world economy. In contrast to the United States’ dynamic private sector, Europe has struggled with low productivity and fragmented markets.
She urged the European Union to appoint a “single market czar” to lead reforms in areas such as financial services and energy integration.
“Europe must recognize that there will be some sacrifices on the way,” she said. “Catch up with the private sector dynamism of the U.S.”
The IMF also issued targeted recommendations for the world’s two largest economies:
The Trump administration was urged to reduce the federal deficit and encourage household savings to ensure long-term fiscal sustainability.
China, the second-largest economy, was encouraged to continue with fiscal reforms, reduce reliance on industrial policy, and boost private consumption as a way to balance its growth model.
As finance ministers and central bank governors convene in Washington, the state of the world economy will dominate discussions. While the global outlook is better than anticipated, challenges remain — including rising debt, uneven recovery across regions, trade tensions, and long-term structural weaknesses.
Source- EWN
