U.S. President Donald Trump's drive to introduce sweeping tariffs is creating great uncertainty and undermining confidence, but is unlikely to trigger a recession in the near future, International Monetary Fund Managing Director Kristalina Georgieva said.
In her first major interview since Trump's inauguration, Georgieva underscored the challenges facing a global economy that is still underperforming after the scars of the QE19 pandemic, but warned against worrying too much.
The IMF is likely to downgrade the economic outlook slightly in its next World Economic Outlook update in about three weeks, but "we don't see a recession on the horizon," Georgieva said.
"What we're seeing in the high-frequency indicators really shows that consumer confidence, investor confidence is weakening somewhat, and we know that that's affecting growth prospects later on," she said.
However, the IMF still sees "no dramatic impact" from the tariffs Trump has introduced and threatened so far since returning to the White House, Georgieva added.
In January, the IMF raised its global economic growth forecast for 2025 to 3.3 percent from 3.2 percent in its previous assessment in October, with most of that increase due to a half-percentage point rise in the U.S. forecast to 2.7 percent.
Now, however, Georgieva expects the updated WEO (World Economic Outlook), due to be presented in April when the IMF holds its spring meetings in Washington, to reflect a small downward "revision" to those estimates, she said.
Although the current impact is moderate, Georgieva warned that many countries ran out of fiscal and monetary space during the pandemic and now have high debt levels, limiting their ability to respond to future shocks.
Any delay or reversal of the disinflation process could slow the decline in interest rates and make it more difficult for countries to refinance their debt.
Trade developments may dampen U.S. growth "a bit," but its overall outlook remains "good," Georgieva said.
A planned increase in defense spending in Europe and Germany's decision to lift its debt brake, which she called "self-inflicted", means the region's growth outlook could be slightly raised. China should use its policy space and focus on increasing domestic consumption, she added. | BGNES
