IMF Chief Sees Global Growth Slowing 'Only Slightly' in Face of Higher Tariffs

By Paul Hannon

The global economy is holding up better than expected in the face of higher tariffs and greater uncertainty about relations between powerful countries and the implications of technological change, the head of the International Monetary Fund said Wednesday.

In a speech ahead of next week's meetings of finance officials from the IMF's members, Kristalina Georgieva said global economic growth is set to slow "only slightly" this year and next.

"How is the world economy coping?" Georgieva asked. "Short answer: better than feared, but worse than we need. All signs point to a world economy that has generally withstood acute strains from multiple shocks."

In July, the IMF forecast that the global economy would grow by 3% this year and 3.1% next, not much slower than the 3.3% expansion recorded in 2024. That was a more upbeat forecast than the projections published as higher U.S. tariffs were being unrolled in April. The fund's economists will release new forecasts during the meetings.

Georgieva said those higher tariffs have had a more modest impact than initially expected, partly because most countries that have been subjected to higher duties have chosen not to retaliate, while businesses have found ways to soften the impact of higher duties.

"The world has avoided a tit-for-tat slide into trade war--so far," she said. "But openness has nonetheless taken a big hit."

Growth has also been supported by developments in asset markets that have eased access to funding for businesses.

"Fired up by optimism about the productivity-enhancing potential of AI, global equity prices are surging," Georgieva said.

The IMF chief also said the U.S. dollar's slide this year "gives precious relief" to governments and businesses outside the U.S. that have borrowed in the currency, since their interest payments now cost less in local-currency terms.

However, Georgieva warned that growth could yet be weakened by a reversal of some of those positive developments.

"On tariffs, the full effect is still to unfold," she said. "In the U.S., margin compression could give way to more price pass-through, raising inflation with implications for monetary policy and growth. Elsewhere, a flood of goods previously destined for the U.S. market could trigger a second round of tariff hikes."

The IMF chief also said the surge in equity markets could end in a similar way to the big rally in technology stocks at the turn of the century.

"History tells us this sentiment can turn abruptly," she said. "Today's valuations are heading toward levels we saw during the bullishness about the internet 25 years ago. If a sharp correction were to occur, tighter financial conditions could drag down world growth."

Georgieva said governments must continue to support growth by providing "the basic building blocks of free markets," including "good data" and "independent yet accountable institutions."

The IMF chief also called on member governments to take action to correct the economic imbalances that have prompted some to embark on "the policy revolution that is now unfolding, reshaping trade, immigration, and many international frameworks."

The IMF chief said China should spend more on cleaning up its property sector and providing a backstop for households, and "much less" on subsidizing its factories. The fund estimates that China's industrial policy costs the government the equivalent of 4.4% of annual economic output.

Georgieva also called on the U.S. government to reduce its borrowing as a share of gross domestic product.

"The federal debt-to-GDP ratio is on a path to exceeding its all-time high after World War Two," she said. "We need sustained action that goes beyond discretionary spending."

For the European Union, Georgieva called for the appointment of a "single market czar" with powers to drive the removal of the remaining barriers to trade and movement of workers within the bloc, a goal that has been acknowledged but unmet for decades.

"Enough lofty rhetoric on how to lift competitiveness, you know what must be done," she said. "It is time for action."

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

October 08, 2025 10:14 ET (14:14 GMT)