Global trade is no longer the growth engine it once was, according to International Monetary Fund (IMF) Managing Director Kristalina Georgieva. In a speech ahead of the annual IMF and World Bank meetings, Georgieva presented a grim outlook for the global economy, marked by sluggish medium-term growth, escalating trade tensions, and high debt levels.
Georgieva emphasized that persistent high prices disproportionately impact the poor and warned that the escalating Middle East conflict could destabilize regional economies and global commodity markets. She also raised concerns about increased military spending diverting funds from other priorities, such as aid to developing countries.
She noted that rising protectionism and increasing trade restrictions are fracturing the global economy, limiting trade growth, and dampening an already tepid world economy. Despite these challenges, Georgieva remains cautiously optimistic, stating, “We can do better, but we can also do much worse.”
While global trade is no longer the primary driver of growth, it has not reversed entirely. Decades of interdependence have moderated the impact of increased trade restrictions since the COVID-19 pandemic. Georgieva highlighted some positive developments, including the decline of global inflation and a move toward price stability, with labor markets cooling orderly in the U.S. and Europe.
Georgieva stated that the U.S. is not in recession despite Federal Reserve rate cuts that have triggered downturns in past cycles, and jobless numbers are expected to remain relatively low. However, the IMF’s forecasts indicate a challenging combination of low growth and high debt. Major economies show mixed forecasts: China’s growth is slowing, India’s growth is accelerating, the U.S. is performing well, but Europe could improve.
Overall, global growth will not be sufficient to eradicate poverty, create necessary jobs, or generate enough tax revenue to service heavy debt loads and fund investments. High and rising public debt exacerbates the outlook, with a severe adverse scenario potentially pushing debt 20 percentage points of GDP above current forecasts. This scenario would force governments to make tough choices about spending priorities, with emerging market economies facing even greater challenges.
To spur growth, countries need to reduce debt, rebuild buffers for future shocks, cut spending, and enhance productivity. Georgieva stressed the importance of global cooperation in addressing trade challenges, rapid global warming, and the growth of AI technology, which requires global regulatory and ethical standards.
“My expectation is that people will leave here somewhat uplifted, somewhat more scared, hopefully scared enough to act,” Georgieva concluded.
