World economy doing 'better than feared' but risks remain, IMF chief says

Surge in gold's share of official reserves serves as warning to global economy's resilience

IMF Managing Director Kristalina Georgieva said the global economy is doing better than expected this year, pointing to milder-than-expected tariff increases. Reuters

The global economy is performing better than expected even though trade policy uncertainty still remains, the head of the International Monetary Fund said on Wednesday.

The world economy is doing “better than feared, but worse than we need”, Kristalina Georgieva said in prepared remarks at the Milken Institute.

Ms Georgieva, speaking before the IMF and World Bank Annual Meetings in Washington next week, said stronger-than-expected performances in the US economy and other advanced economies and emerging markets, and some developing economies have led the fund to forecast global growth will slow “only slightly this year and next”.

US President Donald Trump's sweeping tariff announcements are expected to dominate next week's meetings, which will be attended by the world's finance ministers and central bankers.

“All signs point to a world economy that has generally withstood acute strains from multiple shocks,” Ms Georgieva said, pointing to improved policy fundamentals, strength in the private sector, less-than-feared tariff outcomes and supportive financial conditions.

The IMF in July raised its global growth forecast by 0.2 percentage points to 3 per cent for this year, and 0.1 percentage point higher to 3.1 per cent for 2026. It is due to release its updated outlook on the world economy next week.

The IMF chief said the fund was forecasting global growth to be roughly 3 per cent over the medium term, below the 3.7 per cent forecast before the Covid-19 pandemic.

Gold's rise a warning sign

The IMF chief said that, despite the resilience the global economy has displayed this year, there are signs it has not yet been fully tested.

“Just look at the surging global demand for gold,” Ms Georgieva said, noting that monetary gold has surpassed 20 per cent of the world's official reserves.

Gold prices crossed the $4,000 per ounce threshold on Tuesday, as investors seek a safe-haven from a weaker dollar amid geopolitical volatility. Gold futures were trading at $4,062.80 per ounce as of 6.30pm UAE time/10.30am ET, up 1.47 per cent on the day and more than 52 per cent this year.

Tariff increases are milder than previously expected, Ms Georgieva said, noting the US tariff rate fell from 23 per cent in April to its current rate of 17.5 per cent.

“The world has avoided a tit-for-tat slide into trade war,” she said, adding that the full effect of those tariffs are “still to unfold”.

She also noted the shifting tariff announcements Mr Trump has made with respect to major trading partners including the EU, Japan, UK, South Korea and India.

Meanwhile, she said financial market valuations are reaching towards bullish levels not seen since the internet-related boom 25 years ago. A sharp correction, she warned, could drag down global growth and especially harm developing countries.

“Buckle up: uncertainty is the new normal and it is here to stay,” Ms Georgieva said.

Medium-term goals

Ms Georgieva said the fund proposes a mixture of policy measures to support medium-term policy goals, including durably lifting growth, repairing governments' finances to withstand shocks, and addressing excessive imbalances.

The IMF chief called on Asian countries to push for more regional integration, which she said could raise economic growth by 1.8 per cent in the long-term.

Meanwhile, gains from reforms in sub-Saharan Africa could be especially beneficial to the region's young and growing labour force. Such comprehensive business-friendly reforms, she said, could boost real gross domestic product (GDP) per capita of the median African country by more than 10 per cent.

The Bulgarian-born economist also offered “tough love” to her native Europe, saying the continent needs more than rhetoric to lift competitiveness. She called on the bloc to remove border frictions in the labour market, goods and services trade, energy and finance, and to match US private sector strength.

Ms Georgieva also warned on rising global public debt, which is projected to pass 100 per cent of GDP by 2029.

In particular, she urged the US to address the federal government deficit and take steps to boost household savings.

She also said China needs a fiscal-structural package to increase private consumption and transition to a new growth model, saying deflationary pressures and protracted real estate adjustment are holding back domestic demand. She also said China's reform package should do more for spending on social safety nets and “much less on industrial policy”.