In the United States, an increase in inflation is expected. Georgieva warned of difficult times due to turbulence in global trade, providing more bilateral and multilateral trade agreements. The IMF reduced expectations of global economic growth to 2025 from 3.3% to 2.8%.
The director of the International Monetary Fund (IMF), Kristalina Georgieva, said Monday in Los Angeles that the implications of US implications in the European region will press demand and reduce inflation.
“In the advanced economies that are undergoing a shock of demand – namely the European Union – which are subject to tariffs, we are seeing the expectations of inflation to lower,” said the official, in a session of the Milken Institute’s global conference.
In China, the severity of this shock will be such that the country may face deflation, Georgieva warned. The opposite is expected to the United States, where the forecast is to increase inflation because the demand is not lowering but the offer yes due to sudden barriers of customs rates.
These inverse trends result from the “significant turbulence we are going through in global trade” because of tariffs, one of the main economic topics discussed at the conference and which has challenges for monetary policies.
Although he considers that the world economy has been “extremely resilient” in the face of successive shocks, including Covid-19 pandemic and Ukraine war, Georgieva warned that the coming times will be difficult.
“The consequences are significant because we are going from a predictable commercial regime for the one that will be a new balance, but the way to arrive there is very uncertain,” said the director. “The price of the transition, what the world is paying for this change from a balance to something new, is not trivial.”
The IMF reduced its expectations of economic growth by 2025 from 3.3% to 2.8%, although it does not yet predict a recession.
Kristalina Georgieva said the IMF spring meetings, which took place in late April, showed a lot of anxiety in member countries and the need to pave a way for the return of predictability.
“My expectation is to see a lot of activity around trade relationships, with more bilateral and multilateral agreements,” he said. “I also hope to see the countries to finally do what they should have done, more exchanges between neighbors and reforms that we have defended.”
For the IMF director, this is the positive side of what is happening. He considered that the shock will lead countries such as Germany to make necessary reforms in the case of the European ‘engine’, with an expansion of debt that will allow it to grow more.
The case of the United States is different, because the deficit is very high and the tax cut that will be approved by the new administration will increase it. Georgieva pointed out that there was an excess of stimulus expenses in the country and that spending has to be reflected.
“We will see much more attention to what the economies can grow faster, because it cannot be borrowed to pay debts,” he said. “You can only grow out of debt.”
Still, despite the volatility in the financial markets, the official sees no need for interference from the federal reserve or other central banks. What is necessary, he reiterated, is to reduce uncertainty to ensure that investors continue to invest and consumers continue to consume.
In addition to the Session with the IMF director, there was a discussion panel on global capital markets and what is foreseen for the coming months.
Andrew Sullivan, CEO of the Financial Prudential, said he is already seeing the levels of investment to lower, especially in the real estate area. Jane Fraser, CEO of Citigroup, noted that most companies are in a limbo, waiting to see how the situation will unfold before investing again.
“Customers are preparing for opposite winds,” the executive said, pointing out that the situation will take us faster to a multipolar world, with large economies to rethink their calls.
Also Harvey Schwartz, Carlyle’s CEO, stressed that the “risk cost is higher because uncertainty has increased.” The executive expects there to be some clarity by the end of the year and considered negative the clash with China. “It will not be a good result that the two largest economies in the world are in a trade war.”
The global conference of the Milken Institute runs until Wednesday, May 7, at Beverly Hilton in Los Angeles.
