IMF raises its global economic outlook

IMF Managing Director Kristalina Georgieva said on Tuesday that decisions by most countries not to retaliate against U.S. President Donald Trump’s tariffs have partly helped bolster the global economy’s resilience. She made the remarks at the latest World Economic Outlook event, held during the IMF and World Bank annual meetings in Washington.

Georgieva noted that the world has so far opted not to retaliate and to continue trading under the rules that have existed in global trade. She argued that the initiative avoided debilitating tariff escalation.

IMF raises its global economic outlook 

The IMF on Tuesday elevated its 2025 global GDP growth forecast in its World Economic Outlook from 3% to 3.2%. It also cautioned that the potential resumption of the U.S.-China trade war, threatened by Trump over the weekend, could significantly slow output.

Georgieva told the Bretton Woods Committee event that the effective drop of U.S. tariff rates from prior estimates has also supported global growth. She acknowledged that the analyst’s estimates that Trump’s levies announced in April would average 23% were reduced by U.S. trade deals with the European Union, Japan, and other major partners to about 17.5%.

“The effective tariff, though, what is being collected when you get exceptions to accommodate the need for the economy to function well, we calculate them somewhere between 9% and 10% so the burden is more than twice less than we thought it would be.”

-Kristalina Georgieva, Managing Director of the International Monetary Fund.

The senior IMF executive noted that other factors fueling the global economy have included better policies by countries to boost private sector development and a more efficient allocation of resources. She added that the agility of companies in mitigating the worst impact of trade policies, by front-loading imports and quickly rearranging supply chains, also propped up the global economy.

Georgieva also argued that the stretched valuations could test the resilience of countries in global markets. She noted that the tech sector valuations have been inflated, which has fueled a stellar market rally this year.

The IMF managing director said the stretched valuations are a big bet, as if they pay back, it will eliminate concerns about low economic growth. She believes the world will experience an increase in productivity and growth.

IMF economist compares surge in AI investment to the dot-com crash

IMF Chief Economist Pierre-Olivier Gourinchas mentioned earlier that the surge in AI investments could lead to a bust similar to the dot-com crash in 2000, which burns equity investors. He argued that it would not likely result in a systemic crisis because it has not been heavily funded by debt. 

The economist said the risk of surging valuations will require tighter monetary policy to contain price pressures. According to him, the disadvantages of the AI boom are that markets could reprice sharply, which would reduce wealth, consumption, and investment, lower activity, and expand to broader financial conditions.

Gourinchas said the increased projection on growth and the modest rise in inflation are proving more persistent amid Trump’s heightened trade policies this year. He attributed the economic growth to the tariff impact being smaller than initially feared, due to numerous trade deals and exemptions. He also echoed Georgieva’s remarks, stating that most countries kept the trading system open by refraining from tariff retaliation.

Gourinchas also noted that financial conditions remained loose, partly because of a weaker dollar. According to his assessment, countries such as Germany and China saw their fiscal policy turn expansionary, while in the U.S., AI- and tech-driven investment is booming.

The economist mentioned that there are continued concerns about China’s growth model, where its growth in recent years has come from exports. He argued that it is increasingly difficult for the country to sustain growth since the economy remains close to a debt-deflationary trap.

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