MNI: Tariffs Only Slight Hit To Global Growth So Far-IMF

Global growth is only taking a small hit so far from shocks such as higher tariffs, IMF chief Kristalina Georgieva said Wednesday, who also warned the U.S. and China need major reforms to slim down dangerous trade imbalances.

“We see global growth slowing only slightly this year and next. All signs point to a world economy that has generally withstood acute strains from multiple shocks,” Georgieva said in the text of a curtain raiser speech ahead of next week’s fund meetings in Washington. She didn’t provide a specific growth outlook.

“The world has avoided a tit-for-tat slide into trade war—so far. But openness has nonetheless taken a big hit,” she said. The U.S. trade-weighted tariff rate has fallen from 23% in April to 17.5%, she added.

LINGERING RISKS

Signs of danger remain, including stock market prices resembling the early 2000s when there was a dot-com boom and a rush into safe havens such as gold, which now exceed one-fifth of the world’s official reserves, the IMF said.

Damage from tariffs may still emerge, Georgieva said. “In the U.S., margin compression could give way to more price passthrough, 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.”

She also outlined the need for deep reforms with global public debt projected to exceed 100% of GDP by 2029.

The U.S. needs to curb budget deficits on a path to exceeding its all-time high after World War Two, and to encourage household saving, she said.

“To China, where private savings are chronically high and domestic demand is held back by protracted real estate adjustment and deflationary pressures, we urge transitional fiscal expansion and permanent fiscal re-composition,” she said. China is now spending 4.4% of GDP on industrial policy, the IMF estimates.

“To my beloved, native Europe, some tough love: enough lofty rhetoric on how to lift competitiveness—you know what must be done.”