WASHINGTON, Jan 10 (Reuters) - The International Monetary Fund indicated that it will project steady global growth and ongoing disinflation in its forthcoming updated World Economic Outlook scheduled for release on Jan. 17, as reported by IMF Managing Director Kristalina Georgieva on Friday.
Georgieva noted that the U.S. economy was performing "quite a bit better" than anticipated, although considerable uncertainty surrounding the trade policies of the incoming administration of the President-elect was contributing to the challenges faced by the global economy and pushing long-term interest rates upward.
Given the proximity of inflation to the U.S. Federal Reserve's target and the stability observed in the labor market, Georgieva mentioned that the Federal Reserve might opt to wait for additional data prior to considering further cuts to interest rates. She stated that interest rates, overall, were anticipated to persist at levels "somewhat higher for quite some time."
The IMF will issue an updated version of its global outlook on Jan. 17, shortly before Trump assumes office. Georgieva's remarks provide the first insight this year into the IMF's evolving global perspective, but specific projections were not disclosed.
In October, the IMF retained its forecasts for the U.S., Brazil, and Britain, while revising them downwards for China, Japan, and the euro zone, citing risks stemming from potential new trade conflicts, armed disputes, and strict monetary policies.
At that time, it upheld its forecast for 2024 global growth at the level of 3.2% estimated in July, but predicted a dip of one-tenth of a percentage point in global growth for 2025 to 3.2%, cautioning against a slowdown in global medium-term growth to 3.1% in five years, considerably below its pre-pandemic trajectory.
"Unsurprisingly, given the size and importance of the U.S. economy, there is widespread international interest in the policy directions anticipated under the incoming administration, especially concerning tariffs, taxes, regulatory changes, and governmental effectiveness," observed Georgieva.
She noted that the uncertainty, particularly with regard to the future path of trade policy, was driving the headwinds impacting the global economy, particularly affecting countries and regions heavily integrated into global supply chains, medium-sized economies, and the Asian region.
Georgieva found it "very unusual" that this uncertainty was reflected in elevated long-term interest rates despite a decline in short-term interest rates, a trend not observed in recent times.
The IMF identified diverging trends regionally, foreseeing a modest slowdown in growth in the European Union, a slight weakening in growth in India, and higher inflation pressures in Brazil. In China, the second-largest economy globally after the U.S., deflationary pressures and ongoing challenges with domestic demand were noted.
Despite reform initiatives, lower-income countries were considered vulnerable to significant negative impacts from any new shocks. Georgieva highlighted that the fact that higher interest rates necessitated to combat inflation had not tipped the global economy into a recession was noteworthy, yet fluctuations in headline inflation emphasized the necessity for central bankers to vigilantly monitor local data.
According to Georgieva, the strong U.S. dollar could potentially escalate funding costs for emerging market economies and particularly low-income countries. Most nations were advised to curtail fiscal expenditures after substantial outlays during the COVID-19 pandemic and to implement growth-boosting reforms that are sustainable, with the potential to guard against impacts on their growth outlooks.
"Countries are unable to borrow their way out of the situation. The only way out is through growth," Georgieva remarked, emphasizing that the medium-term growth prospects worldwide were at historic lows.