The decision by most countries not to retaliate against US President Donald Trump’s tariffs is among the main factors strengthening the resilience of the global economy, IMF Managing Director Kristalina Georgieva said on Tuesday.
“The world, until now, and I can’t stress this enough, until now, has chosen not to react and to continue to trade more or less with the rules that existed,” Georgieva said during an event at the annual meetings of the IMF and World Bank in Washington, stressing that this avoided a debilitating tariff escalation.
On Tuesday, the Fund raised its global GDP growth forecast for 2025 in its Global Economic Outlook to 3.2% from a forecast of 3.0% in July, but warned that a new trade war between the United States and China, threatened by Trump, could significantly slow production.
Georgieva said at the Bretton Woods Committee event that the fact that the US effective tariff rate has fallen compared to previous estimates is also supporting global growth. After calculating that the tariffs announced by Trump in April would average 23%, the rate was reduced by U.S. trade deals with the European Union, Japan and other key partners to about 17.5%, he said.
“However, the effective tariff, the one that is applied when you get exceptions to meet the need to make the economy work well, we calculate it at between 9% and 10%, so the burden is more than double what we thought it would be,” he added.
Other factors that supported the global economy were better policies adopted by countries to stimulate private sector development and more efficient allocation of resources, as well as the agility of companies to avoid the worst effects of tariffs, frontloading imports and quickly reorganizing supply chains.
However, he said resilience could also be tested by inflated valuations in global markets, particularly in the technology sector, which has driven an impressive market rally this year.
“This is a gamble, a very big gamble,” he said. “If it pays off, great, then our problem with low growth will be solved, because we will see increased productivity and also growth. But what if it takes time to materialize or doesn’t materialize at all? So what?”
The International Monetary Fund’s chief economist, Pierre-Olivier Gourinchas, previously told Reuters that the AI investment boom could lead to a crash similar to the dot-com crash of 2000, hurting equity investors, but that it would likely not result in a systemic crisis because it was not heavily financed by debt.
Source: Terra
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