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April 2, 2025 04:18-04:45 - CSPAN
26:54
IMF Director on Challenges Facing Global Economy
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kristalina georgieva
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Trade Resilience Despite Debt 00:15:01
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The managing director of the International Monetary Fund, Kristalina Yorgeva, highlighted the potential economic effects of President Donald Trump's tariff plan during a discussion with Reuters.
The director also talks about how U.S. protectionism has led to other nations building their own resilience.
The interview runs about 25 minutes.
Hi, welcome to Reuters Next.
I'm Andrea Shalal, and we're here today with Kristalina Gorgieva, Managing Director of the International Monetary Fund.
Thank you so much for joining us at this critical time in the global economy.
I know that you and the IMF staff are getting ready for the big spring meetings of the IMF and the World Bank taking place here in just a couple of weeks.
And it is really a really interesting time.
We've seen the new American president set off what some are calling a new global trade war with tariffs against China, Mexico, Canada, as well as sectoral tariffs against cars and imported steel and aluminum.
Markets are rocky, you know.
They're girding for news this week about the next spate of tariffs on reciprocal tariffs.
And the president has also imposed secondary tariffs against Venezuela already and is sort of saying that they could be put in place against anyone who buys Russian oil in coming weeks.
That could hit India and China very hard.
So you have been warning for years about the dangers of protectionism.
In fact, in your very first speech as managing director in October of 2019, in the middle of the U.S.-China trade war, you warned against fractures in the global economy and said everyone loses in a trade war.
Is that still true?
Why isn't anyone listening to you?
kristalina georgieva ▲ ● ▼
What we have seen over the last years is that the world is dramatically changing.
It is no more what it used to be.
To quote Dorothy from the Wizard of Uls, we are not in Kansas anymore.
And we need to reflect on what has changed that these warnings that you were giving then did not lead to reversal of protectionism.
What changed, Andrea, are three things.
The first one is the incredible shocks that hit the world economy.
And what they have shown is that supply chains are unreliable if they are single-handedly Link to one country, and what they have shown also, especially the war Russia started in Ukraine, that national security really matters.
Fast forward to the day, and what we see is that that sense of protectionism has become much stronger and demonstrably present in the economic policies, not only in the United States, but in particular here in the United States.
When we look at the trade picture, we need to recognize two things.
One, that the introduction of trade measures does create some uncertainty, especially rapid introduction.
And uncertainty leads to impact on consumer confidence, on investor confidence.
It also takes this inflationary process to move slower or stall.
We also recognize that the reaction to this sense we need more national security is underpinned by many, many, many people across the globe feeling that trade as we know it from the decades when it was flourishing, yes, it made all countries better off,
but it did not make all people better off.
And that, of course, gave that push to let's protect our own jobs, let's protect our own economies.
We are seeing, however, that despite all this, the economies have proven to be resilient.
Trade has proven to be resilient.
Yes, today GDP growth is faster than growth in trade, but not by much.
In other words, trade continues to grow.
Trade in services grows much faster than trade in goods.
And a very important observation: countries that have similar interests to be more integrated, especially small, medium-sized, open economies, they seek more collaboration.
So trade is also rewired and will continue to be rewired.
So that is the context within which indeed there is a lot of anxiety around developments.
But I would say there is also a silver lining in this process because it is forcing countries to take much more seriously how to build resilience on their own based on their own policies.
unidentified
How do you see the tariffs that are already in place?
So we know about some, we know more are coming and we don't know exactly what those are going to be like.
But how do you see those affecting the tepid outlook?
I mean the global economy is not doing as well as it would have been or as it was destined to before COVID.
You know, in January you predicted global growth of 3.3% in 25 and 26 below the historical average.
And you warned that, I mean, as an institution, you warned that unilateral tariffs could leave every country worse off.
Are you now expecting to downgrade your outlook?
kristalina georgieva ▲ ● ▼
What we see in the high-frequency indicators is indeed indicating that consumer confidence, investor confidence are weakening somewhat.
And we know that that then translates into impact on growth prospects.
I would say this.
We would know more when we can analyze all the data available.
In three weeks, we will present our world economic outlook.
We are not seeing dramatic impact.
If anything, there would be a small correction.
However, I want to send the following.
unidentified
Downward correction.
kristalina georgieva ▲ ● ▼
Downward correction, yes, but relatively small.
We don't see recession on the horizon.
We don't see stagflation on the horizon.
But I want to send this cautionary note.
What we do worry about is the absorptive capacity of economies to any further shocks.
When I became managing director just before COVID, countries had fiscal space, abundant many of them.
They had monetary policy space.
All of this is gone.
What do they have?
Majority of the countries have high level of debt.
So if we tamper with the process of disinflation, if it stalls any further, if inflation expectations get somewhat de-anchored, then interest rates will stay where they are.
God forbids any movement upward.
And that at the time when countries need to refinance, many of them they need to refinance their debt under higher interest rate conditions.
Yes, financial conditions remain accommodative now.
Will they stay that way is to be seen.
So what is the moral of the story?
It is twofold.
One, the sooner there is more clarity, the better.
Because uncertainty, our research shows the longer it goes, the more it may negatively impact growth.
And two, for countries that have been kind of playing with the idea of structural reforms, more pro-growth reforms, but have been slow to implement, slow no more.
Focus on getting your economy in good place now.
unidentified
So I want to go back to the economic outlook, and I want you to just very quickly run through the U.S., China, Europe.
We've seen defense spending increasing there on top of already high deficits.
So, you know, and then we've got, you know, then we have all the developing countries.
So let's do them one by one.
What's the thumbs up, thumbs down for the U.S. economy?
kristalina georgieva ▲ ● ▼
The U.S. economy has been doing incredibly well over the last years.
Our projections for growth for this year, 2.7% in January.
We would see whether all the developments and the uncertainty today may hold growth a little bit back, but there is a long way to go for the US growth picture to become too gloomy.
So US is going to do okay, maybe a little less okay than otherwise.
Europe.
Europe is actually an example when this shock that comes from the trade front has forced some rethinking of how Europe should look after itself.
And the shock in particular from the need to invest in defense, forcing European leaders to carefully assess what they can do.
The outcome, we actually see modest improvement in growth prospects, but let's remember growth prospects for Europe not great in the beginning of the year.
We were, I think, 0.9% in this order of magnitude.
They would be maybe tiny little bit better.
Why?
Mostly because Germany finally braved to remove a self-inflicted injury called that break.
At the front, we have been advocating for this for some time.
Good for Germany, good for the rest of Europe.
And Europe is finally talking seriously about its own competitiveness, completing the single market, banking unit, capital markets union.
If Europe does that, it would be in a better place.
China has gone through a time of not sufficient action to address the two big problems the country faced, property sector problems, local government debt.
They are now announcing measures to address them more seriously.
China, of course, has to do that because the more a country interacts with the United States, the more it trades with the United States, the bigger the impact, potentially negative impact of tariffs.
So we talk about China, but we also talk about Canada, Mexico, countries that are more exposed to the US.
China has space, policy space.
It has to be decisive to use it, and China has to be decisive to follow on their proclamations for market reforms that would shift towards domestic consumption.
We have been talking about that with China for quite some time.
Tariffs and Their Impact 00:11:41
kristalina georgieva ▲ ● ▼
The economy is now far too big to rely on exports for growth.
It has to rely on domestic consumption for growth.
Where else do you want to go?
unidentified
So we talked briefly about inflation, but it is clear that tariffs will add to costs for consumers in the United States, but also in many other countries.
And I know you said stagflation is not on the agenda, but we do hear from Federal Reserve officials that they see the risks skewed toward higher inflation and higher unemployment.
What prevents a return to that kind of really dragging period in the 1970s?
kristalina georgieva ▲ ● ▼
Well, as I said, the projections we have for growth in the United States are quite robust.
Even with some slowdown in growth, it would remain strong.
The US economy excels because of two things, because it attracts financial flows from outside the rest of the world, works for the United States, and also because it is innovation-driven economy.
Whether the U.S. is going to have some impact of high inflation is to be seen.
As I said, high frequency indicators show that inflation in February was a little higher than we expected it to be.
When we look at inflation expectations, they're a little higher, but not dramatically changing the disinflation trajectory between now and 2026.
In other words, 2025, this inflation may slow down a bit, but ultimately it should be bringing the result that the Fed is aspiring for in 2026.
Now, needless to stress that the Fed has to watch this very carefully because let's go back to what is that worries us, that cloud of uncertainty over our heads.
unidentified
You know, you brought up something just now that I want to ask you about, which has to do with the role of the United States in the global economy.
It's undoubtedly the leader.
It's the largest economy in the world.
But the uncertainty that has been unleashed with the threat of tariffs, the rolling back of tariffs, again, another threat of tariffs.
People are very much on edge.
Businesses, consumers, government employees, there's a lot of churn and change here in the United States, but also that has a lot of impact in terms of investment.
We've seen foreign direct investment slow down.
Are you expecting that?
Is this a bump in the road, or is it something that the U.S. can get over?
kristalina georgieva ▲ ● ▼
What would define it?
Longevity of uncertainty.
If we see uncertainty reduced fairly quickly, I think that the expectations about the United States will be factored in a way that would continue on this path, a fairly strong growth and strong economy.
So I am praying, as the one who is paid to worry about the state of global affairs, that we see that reduction, that clarity comes and it comes faster.
unidentified
I think that you met recently with the Treasury Secretary, Scott Bessant.
How did that meeting go?
The U.S. is the largest shareholder.
And of course, the U.S. has withdrawn from other multilateral organizations, including the World Health Organization, pulled out of the Paris Climate Accord.
Were those issues that came up for you in your conversation?
And how do you see the U.S. sort of playing its role with the IMF going forward?
kristalina georgieva ▲ ● ▼
It was a very good meeting, very constructive meeting.
We talked about policy issues, but we also talked about countries that are priority for the fund.
Secretary Basant has good appreciation for why it is in the interests of the U.S. economy that the fund exists.
We are the only institution that has the capacity to rescue countries when they are in trouble.
We currently have 50 programs.
We are very unique of how we get funded, Andrea.
We are like a savings account.
Countries provide resources at our disposal.
They're their resources.
They don't become fund money.
We lend to countries in need, and then we pay back with interest.
The last two years, the U.S. earned $3.2 billion from the fund because of that savings account the US has.
And we, of course, value the US because it is the largest economy.
It is the largest member, 17.4%.
People don't realize the next largest, Japan, is 6.5%.
So it's a very, very significant presence.
And the United States is our home.
This is where we live.
This is where the kids of my staff go to school.
So very good engagement, very good engagement.
And I look very much forward to continuing to work with Treasury.
unidentified
That's great.
I have just one more quick question on the U.S. specifically.
You know, there's a lot of talk about deregulation, including in the banking sector, and they are trying to ease the regulatory hurdles for digital assets.
Are you at all concerned that this deregulation move could leave the U.S. and also the global economy then more exposed to financial volatility and a flash crash, the bad things that have happened?
kristalina georgieva ▲ ● ▼
We do want to see smart regulation everywhere.
There has been some overdose of regulation in some cases that is on the way of performance.
And as you know, growth has been underwhelming in the last years, underwhelming in the next years to come.
So removing barriers for entrepreneurship and growth is a good thing.
Two, as we look at this removing barriers, of course it has to be done without creating financial and macro stability risks.
And that is where your question is a very good question.
What we heard so far from the administration, from the summit that took place in the White House, is actually quite encouraging because it is a conversation about smart regulation, how to make sure that the economy can rely on the advancement of technology in that area, but do that safely.
And actually, I very much hope that the U.S. would take some leadership in moving forward in this area so other countries can take a cue and can follow.
We are going to have a discussion during the spring meetings on this very topic because we feel that over-regulating technology-driven areas is a problem.
Under-regulating is a risk.
So finding the right balance is something that I also hope that the fund can contribute to.
unidentified
Terrific.
We spoke about China, we spoke about the U.S., we spoke about Europe.
We haven't spoken much about the developing world where debt levels remain very high.
And the strain, the growth has not recovered to the pre-COVID rate by any stretch.
So what do you see with the outlook there?
And how does this global trade war affect countries that are struggling to sort of get ahead and facing climate change risks?
kristalina georgieva ▲ ● ▼
In most emerging markets and developing economies, the underwhelming growth prospects are reality.
And for some of them that are under a big pile of debt, it is very difficult to break out of this circle of debt service to just stay afloat and have access to markets.
We have been working very hard with creditors and debtor countries to bring faster resolution to debt when that is unsustainable.
We have made some progress.
Right now we are dealing with, well, if you look at the duration of negotiations, it is getting shorter and shorter and shorter.
Now Ethiopia is moving hopefully faster than Ghana did before it.
But we still would like to see much more attention to low-income countries, much more decisiveness of the creditors to give predictability if a country asks for help.
Let's not cherk around that ask.
Let's move on it quickly.
And the fund is very firmly engaged.
We have created together with the bank the Global Sovereign Debt Roundtable.
We want to make further progress to institutionalize that resolution.
For low-income countries, for emerging markets overall, now is the time to think strategically how they see their own future.
And frankly, one, get your house in order.
If you have problems, solve them.
Two, we need to work together.
These countries, more than anybody else, they rely on a global economy that is more integrated.
unidentified
That's a wonderful note to leave it at.
Thank you so much, Crystalina.
It's a pleasure.
It's always to speak with you.
We'll see you in a couple weeks.
And this is Rogers Next.
Thank you very much.
Here's a look at some of our live coverage coming up today on the C-SPAN networks.
On C-SPAN at 10 a.m., the Supreme Court will hear oral argument in a case on South Carolina's efforts to remove Medicaid funding for Planned Parenthood.
Then at 4, President Trump will talk about his tariff plans from the White House Rose Garden as part of his Liberation Day event.
Senate Environment and Public Works Committee Testimony 00:00:41
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And C-SPAN 2 will be live at 7 a.m. to bring you the weekly Prime Minister's question session from the British House of Commons.
Then the Senate's back in session to work on more of President Trump's executive nominations.
And on C-SPAN 3 at 10, Transportation Secretary Sean Duffy will testify on the Trump administration's plans for an infrastructure bill before the Senate Environment and Public Works Committee.
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