2025 Annual Meetings Curtain Raiser: Outlook for the Global Economy and Policy Priorities

Thank you. Thank you. Good morning, everybody.

Mike, from the bottom of my heart, thank you. That was a very kind introduction. But above all, thank you for allowing me and the IMF to be part of the opening of this fabulous center. I cannot think of a better place to talk about the pursuit of opportunity than right here in the hall of dreams.

As I look at the world over the decades, what I see is incredible progress, but also unfulfilled dreams. The average person today is much better than the one 30 years ago. But the average conceals deep undercurrents of marginalization, discontent, and hardship.

My former professor of statistics used to say about averages: you can put your head in the fridge, your feet in the oven, your average temperature would be average, but you will be dead.

And what we see is many people in many places, especially the young, are taking their disappointment to the streets. From Lima to Rabat, from Paris to Nairobi, from Kathmandu to Jakarta, all are demanding better opportunity.

Here in the US, chances of growing up to earn more than your parents keep falling. And here, too, discontent has been evident and it has helped precipitate the policy revolution that is now unfolding, reshaping trade, immigration, and many international frameworks.

All of this plays out against a backdrop of deep transformation in geopolitics, in technology, in demographics with populations surging in some places and shrinking in others, and in the mounting harm we do to our planet.

What is the result? Exceptionally high uncertainty. Globally, it has shot up and continues to climb. Buckle up. Uncertainty is the new normal. It is here to stay.

As we know, next week the world's finance ministers and central bank governors would gather at our annual meeting. Wonderful to see one of our former governors, Treasury Secretary Mnuchin here. Thank you for joining us today.

As you know, this would be time of very intense engagements and the most pressing questions will be about the global economic impact of these forces of transformation and the policy turbulence we are experiencing today. So, how is the world economy coping? Short answer: better than feared, but worse than we need.

When we met in April, many experts, not us, predicted a US recession in the near term with negative spillovers to the rest of the world. Instead, the US economy, as well as many other advanced and emerging markets, and some developing countries, have held up.

As our World Economic Outlook will explain next week, 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.

So, how do we explain this resilience? What made it possible? I would point to four reasons. One, improved policy fundamentals. Two, private sector adaptability. Three, less severe tariff outcomes than initially feared, for now. And four, supportive financial conditions for as long as they hold.

Let me elaborate. First reason, better policy fundamentals and global coordination. In many parts of the world, sustained efforts have delivered more credible monetary policy, deeper local currency bond markets, new fiscal rules, and during the pandemic, and actually Secretary Mnuchin was part of it, swift, decisive, and globally coordinated fiscal action to limit the immediate pain and the lasting scars.

Emerging market economies, in particular, have significantly upgraded their policy frameworks and institutions. We just put out a report on progress they have made, quantifying the gains. These economies now perform better when shocks strike than before the global financial crisis. Good policy makes a difference.

Second reason for resilience, private sector adaptability. And again, we have seen the public sector moving out from where it doesn't belong, from the economy, the private sector stepping forward, and that is benefiting the world at a time of more turbulence. Just look at private initiative in world trade.

Companies have been front-loading import orders in advance of tariff hikes and reorganizing rapidly their supply chains. Corporate balance sheets are generally strong after years of robust profit. Reflexes are quick after the dry runs of shock after shock.

Artificial intelligence is becoming mainstream. Anybody in this audience using ChatGPT? Raise a hand. Okay, mainstream. And change is faced as a challenge, but also embraced as an opportunity.

Third reason, tariffs, where the shock has not been as large as initially announced. The US trade-weighted tariff rate has fallen from 23% in April to 17.5% now. This is still much higher than it was before.

The US effective rate, we calculate that it is around 9 to 10%. In other words, what is collected as tariffs is far above the rest of the world. But the world has been relatively steady this year with very few cases of retaliation.

In short, the world has avoided a tit-for-tat slide into a trade war, for now. But openness has nonetheless taken a big hit, and the story is not over. US tariff rates keep moving.

Trade deals with the UK, the EU, Japan, soon Korea, they have nudged some rates down, while disputes with Brazil and India have pushed others up. And other countries' rates also are likely to move somewhat more. But bottom line here is better than we feared.

Fourth reason, supportive financial conditions. Fired up by optimism about the productivity-enhancing potential of AI, global equity prices are surging. This plus tight risk spreads leaves funding markets generally wide open.

And in addition, the dollar's slide earlier this year gives precious relief to non-US borrowers with dollar-denominated debt. So, here we have it, four factors behind the economic resilience we have seen this year.

But before anyone heaves a big sigh of relief, please hear this. Global resilience has not yet been fully tested. And there are some worrying signs the test may come.

Just look at the surging global demand for gold. Spurred by valuation effects and net purchases, partly reflecting geopolitical factors, holdings of monetary gold now exceed one fifth of the world's official reserves.

On tariffs, the full effect is still to unfold. In the US, margin compression could give way to more price pass-through, raising inflation, with implications for monetary policy and for growth.

Elsewhere, a flood of goods previously destined for the US market could trigger a second round of tariff hikes. Yes, world trade is rippling, but still flowing. Like water, it is not easy to plug and stop.

For now, most of the world's trade still follows the rules. We at the IMF are urging the world's policy makers, please keep it this way. Please preserve trade as an engine of growth.

As for easy financial conditions, which are masking, but not arresting some softening trends, including in job creation, history tells us this sentiment can turn on a dime.

Today's valuations are heading towards levels we saw during the bullishness about the internet 25 years ago. If a sharp correction were to occur, tighter financial conditions could drag down world growth, expose vulnerabilities, and make life especially tough for developing countries.

So, in a multipolar world of rapid change, it is paramount that policy makers do much more to capture and deliver opportunity, so they can meet the aspirations of their citizens, especially young people.

So, how could they do that? At the IMF, we propose three medium-term policy goals. First, to durably lift growth, so the economy create more jobs, more public revenue, better public and private debt sustainability.

Second, to repair government finances, so they can buffer new shocks and attend to the pressing needs without driving private sector borrowing rates up. And three, to address excessive imbalances, both domestic and external, so they do not emerge as a spoiler.

Let me take you through those three one by one. First, growth. Many of you have heard me talking about it. Global growth forecast at around 3% over the medium term, way below the pre-pandemic 3.7% level.

Global growth patterns have been changing over the years, notably with China decelerating steadily while India is turning into a key growth engine.

Durably lifting growth requires above all higher private sector productivity. And for this, governments must provide and protect the basic building blocks of free markets, including property rights, rule of law, good data, effective bankruptcy codes, strong financial sector oversight, and independent yet accountable institutions.

In too many economies, private sector productivity is tangled up in red tape and startups can neither start nor grow. Competition, of course, is key. And regulation must not tolerate or create unfair advantage.

So, today I call on our member countries to embrace a regulatory housecleaning to release entrepreneurship energy supported by strong institutions and governance. This is not the time for self-inflicted injuries. This is a time to get the house in order.

To Asia, I say, deepen internal trade to include more final goods and more services, and press forward with reforms to strengthen the service sector and access to finance.

Our analysis suggests that a push for more regional integration, notably by lowering non-tariff barriers, could raise GDP by 1.8% in the long run.

To sub-Saharan Africa, I see the Kenyan ambassador here. Gains from reforms in this region can be especially large given the young and growing labor force.

Comprehensive business-friendly reforms combined with progress in advancing the continental free trade area, they could lift the real GDP per capita in a median African country by 10%.

And to my beloved native Europe, some tough love. Enough lofty rhetoric of how to lift competitiveness. You know what must be done. So, do it.

Consider appointing a single markets czar with real authority to drive reforms forward. Remove border frictions in the labor market, goods and services, trade in energy and finance.

Build a single European financial system. For God's sake, get the capital markets union to work for you. Build an energy union. Complete your project and catch up with the private sector dynamism of the United States.

A picture can say a thousand words. Here, what you see is how seven US mega firms, none of which existed 51 years ago, boast market capitalization in the United States. Right there. So, look at the picture here and on picture there. They dwarf the firms of similar vintage in Europe. This has to change.

Let me now turn to fiscal affairs, starting with the sobering reality that global public debt is projected to exceed 100% of GDP by 2029. And this is led by advanced and emerging market economies.

Rising debt inflates interest payments, exerts upward pressure on borrowing costs, constrains other spending, and reduces government's ability to cushion against shocks.

And one of the most dramatic casualties in advanced economies is that development assistance to the world's neediest countries has been regrettably on a decline.

And what it means for low-income countries on the receiving end of this trend is more self-help, including a minimum tax-to-GDP target of 15%. I mean, frankly, you cannot have a functioning economy if your tax-to-GDP is 9%, 10%, 11%.

We also have to advocate for fiscal consolidation as a necessity in countries, rich and poor alike. And yeah, consolidation is difficult as many of the recent episodes of social unrest show.

But if it is planned, communicated, and implemented well, significant deficit reduction can be delivered, especially if it is helped by higher medium-term growth. And that's our hope, you know, grow your economy out of trouble.

With that, let me now turn to the third task, reducing resurgent current account imbalances. As we have seen, these imbalances can trigger a protectionist backlash and being mirrored by net capital flows, they can fuel financial stability risks.

At the IMF, we are working hard to refine our external sector assessments, and we will keep pushing key players for policy corrections.

To the US, where both private consumption and the fiscal deficit are high, and the current account deficit is at levels not seen since the early 2000s, we will urge action along two broad dimensions.

First, steps to address the federal government deficit, noting that the federal debt-to-GDP ratio is on a path to exceed its all-time high after World War II. We need sustained action that goes beyond discretionary spending.

Second, steps to incentivize household savings, where consideration should be given, for instance, to expanding existing plans that provide favorable tax treatment for retirement savings, among other possible tax policy adjustments.

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 recomposition.

China needs a fiscal structural package to boost private consumption, transition to a new growth model, and reflate its economy, which will also help counter the recent depreciation of its real exchange rate, which pulls against rebalancing.

This gives me time to breathe. Here is the exchange rate. Among other items, China's package should include more spending on social safety nets and property sector clean up, and much less on industrial policy where a new IMF paper estimates the cost at high level 4.4% of GDP per year.

As for Germany, its recent structural shift to a more expansive fiscal policy, which should help bring down the current account surplus, shows that yes, yes, corrections can be made. Bravo to Germany.

Public spending on infrastructure, pushed up by providing incentives for private investment at home, will be especially beneficial as Germany seeks to inject new dynamism into its private sector. And yes, the country needs it and can benefit from it.

So as I close, let me go back to youth aspirations. Mike, it is with a sense of deep responsibility that I lead an institution where our basic duty is to influence policies in a way that maximizes economic opportunity for all people.

So today my parting words are these. If we all pull together in this complex and uncertain world, we can deliver good policies that underpin free markets with smart regulations, strong institutions, reliable data, and robust safety nets.

Policies with the power to further increase resilience and accelerate growth. I will finish with words I read on the wall in this room. A dream you dream alone is only a dream. A dream you dream together is reality.

So let's get it done and deliver opportunity in this time of change. Thank you.

Thank you. Again, many thanks for hosting us here, Mike. When we step back to April when we had our spring meetings and all the governors of the IMF and the World Bank, ministers of central bank governors were here very anxious. Why? Because of very high uncertainty.

At that time the fear of downward adjustment was overwhelming. I remember defending, we at the fund were saying, wait a minute. It's not that bad. I mean, yes, we have uncertainty but we also have all these strengths in the economy.

And I spent in virtually every interview defending that the fund is not projecting a recession. And when I look forward from that moment, to me the main reason we are more resilient is because good policy fundamentals underpin private sector adaptability.

If we were still in a world with very big share of the public sector in the economy, as it used to be in the Gulf, as it used to be in my part of the world, that adaptability would have been missing.

So my first message to everybody in this audience is at a time of very high uncertainty you need agility and adaptability and the private sector is so much more capable of delivering it.

Of course it doesn't mean that the private sector would always get it right. And this is why having good data to give a sense of where we are headed, good institutions that can be there to make sure that there is a level playing field and that there is predictability of what regulations would look like. This all matters tremendously.

But if I'm to go back to my personal history and you mentioned I was born in Bulgaria, I grew up in a non-market economy, I can tell everybody here it doesn't work, ain't going to work to have centered decision-making and the oversized public sector role.

So what do we want for the private sector? Three things. One, clarity in the regulatory environment, not too much, not too little.

Two, access to finance and this is where the whole story of governments bringing down deficits matters so much because if they don't do it they're pushing up interest rates up for the private sector included.

And three, we need the ability of small companies to grow. And in far too many places if you are a small company you're stuck between the big guys.

And in so many places failure is not treated kindly. The United States has the advantage of saying, hey, you know, I fell off the cliff, I dust myself up, I go again. But in many, many places the laws do not clean the economy from debt.

So companies start, fail and then they're stuck. So there is a lot actually when I talk about regulatory housecleaning I mean it. There is a lot we need to do to create this enabling environment.

Why? Because uncertainty is here to stay and we need the agility of the private sector to bolster growth prospects. So you mentioned something, many of the stories of the thousand stories that you can see in this center of the uniqueness of why they came to the United States was they had a chance, a second chance, a third chance.

Look, I mean, there is a beautiful saying that the proof of the pudding is in the eating. So let's eat some more and then we can answer this question. What I see in the United States is a recognition that the world we had before has become unsustainable. For many reasons, and we can argue are they right reasons, are they wrong reasons, but what is happening is not a capricious move. It is a response to the fact that far too many people felt disenfranchised. Is the way this is being addressed the right one? Let's collect more data, and we actually are going to have an in-depth engagement with the US authorities towards the end of this year. We will talk more about what works, what we think can be done differently. I want to zero in on one issue where I don't think there is disagreement. And this is the issue of the size of the deficit. I don't think there are many people who would stand up and say, 'Hey, large deficit is beautiful. Let's have more of it.' So the question is, how do we deal with it? Because it is a very important signal, including to the private sector, that there is a path to reduce the deficit.

What are the ways to do it? One, grow more. At this point we have seen a very resilient growth story in the United States. Would it hold? And there we are looking at the incoming data. There may be some softening. The very fact that the Federal Reserve decided to cut interest rates in the balance between inflation and growth shows that there is that softening. So more to generate impetus for growth, certainly important. Two, look at the balance of revenues and expenditures with a rational rather than emotional eye, and there I think we all could see. I talked about one aspect of tax policy that could be steps to be taken.

But the third step is the most important and the most difficult one. Carry people with you. Get people to understand that a ballooning deficit and more public spending is not necessarily good for them. And that is where I see it — across not just in the United States, everywhere. We still haven't figured out how to do that, how to bring people with us on things that are tough. In my part of the world, in Central and Eastern Europe, we have had examples of brave leaders doing very difficult stuff — cutting pensions and wages by 40 to 50 percent — and being reelected. Why? Because they carried people with them. There is confidence that it needed to be done. We now look at Argentina. Argentina is taking a very dramatic adjustment program forward. The success is going to be based on carrying people with you. So I hope that if there are Americans in the audience — I mean, we are an international community, but I hope there are — I hope that you guys are taking this. We need to carry people with us to solve a problem that otherwise is going to hang on our neck and drag the economic growth down.

Well, the world today is, of course, different from what it was five years ago, before the pandemic, ten years ago, twenty years ago. And one thing that I tell my team, I tell our members, is: look forward. It would be a big mistake to be nostalgic for the days we lived in and pray — don't waste your dream for going back. Think about going forward. And there, of course, there are very important pillars of global growth and stability. China is one. The EU is one, and I saw on the map coming up we have regions of the world like the Gulf, ASEAN countries that are showing dynamism that we should be talking more about.

But going to China, I mean, China is in a place where, from top to bottom, from the policy decision makers to ordinary people, they understand that the growth model they relied on cannot be sustained. That they need to switch to a consumption-driven growth model. But doing so is not easy and it takes time. And when I go to China, actually what impresses me more than the growth numbers, the inflation or disinflation risk — what impresses me more is that we have a whole country of 1.4 billion people that is now seeing their fortunes changing. They were a country that for four decades knew only one thing: up, up, up. Growth up, standard of living up, wages up, job opportunities up, entrepreneurship opportunities up. And now they're turning into what I would say a normal country — a country that goes up, goes down.

The adjustment, especially of the young people in China, to this normal place for China. You know, other economies have gone on this way. This is not an easy adjustment, and I think, again, more talking about what can and must be done and mobilizing the doing is necessary. And there we have one fixation, one fixation, and it is: get an economic policy in place that reflects today's realities. And again, I want to repeat myself. There is a recognition in China that the export growth model is no more viable, but it is not easy to switch to consumption.

In Europe — so Europe is such a wonderful place. At my former job at the World Bank, we wrote a report about Europe in which we classified Europe as a lifestyle superpower. It's wonderful to live in Europe. I remember coming from the East Coast, from the World Bank, to be a commissioner and asking my team to plan the year. So they came up with the calendar, and the calendar had all these red spots. I said, 'What is this?' 'Oh, Easter vacation, summer vacation, Christmas vacation.' So I said, 'Look, where I come from, we actually plan our vacations around work, not work around our vacations.' So Europe — this is, if you ask me, what is the biggest challenge for Europe? The biggest challenge for Europe is to get into this reality that they have pressure to spend more on defense. Russia's war in Ukraine has been devastating, with significant consequences on public spending in Europe. They have to create more space for private companies, especially small companies, venture capital to come, to grow. And they have to recognize that there would be some sacrifices on the way. They have to adapt to this new reality.

But let me say, Europe — the biggest thing, the most wonderful thing about Europe is that Europe has this incredible project of integrating 27 economies. They may grow to be more. In parentheses, Europe is dating again the UK. So the divorcee is kind of coming closer. They have a beautiful opportunity to do better. And it is my conviction that Europe can be a competitive force, a driver of growth for them and the rest of the world. But they have to overcome this tradition of, 'You know, we don't have to spend much on defense. You know, we can take long vacations.' This time is kind of over. Sorry. Where are my European friends here? Well, my family's in Europe. So what I'm saying, I feel it in my heart.

This is what my friend and colleague, Ajay Banga, is concentrating the work of the World Bank entirely on: how to create jobs for young people in the developing world where population is growing. And of course, at the Fund, we also work on this because it gets into macroeconomic and financial stability for the countries themselves and through spillover to their neighbors and the rest of the world. It is really very simple as an image. We have people here in Africa, in India. Although India is also going to see their demographic shifting, but okay. We have people here and we have capital there. Capital is in the north, the people are in the south. How do we build a bridge for capital to go from here to there? And I don't have a silver bullet for Africa. It is hard work. Countries have to make themselves more trustworthy with rule of law, with strong governance, with institutions that bring confidence. But most importantly, and perhaps even more difficult than this, they need to work together. Today, Africa is being put in one big pot in the eyes of many investors. So something wrong goes in one place, say Sudan falls off the cliff, it throws off investor appetite for the whole of Africa. So I know that institutions in Africa see it, but they have to see it more clearly. They have to work very hard at continental level to get that sense that they help each other and they press each other. It is not any more viable to have a country in Africa deciding to go for a coup and then destroy the institutions, and the neighbors to say, 'Well, that's not good,' you know, 'boo boo boo, why are you doing it?' but not actively engaging to correct it. As long as we can lift up the image of those economies that are doing the right thing. I mean, Africa has countries with 25 percent plus tax-to-GDP ratio, with very dynamic entrepreneurial culture. Get this to be dominant, but that requires engaging with others. Not good enough to focus only on your own country, on your backyard.

Well, India — the most impressive thing India has done is policy reforms. Tax reform, making it simpler. The digital infrastructure, which is public — it allows everybody to tap in and benefit from it. I think India needs to stay that course of reforming the economy. And of course, like everywhere else, make sure that the small companies, the entrepreneurial spirit of startups, is given space to flourish. I am very optimistic on India because of this boldness with which they do things that others are telling them are not possible. For example, digital identity. India — everybody was saying, 'You cannot have everybody with digital ID, this number, this system that you are promoting. It's not going to work.' They have proven them wrong. So it's working. And then they used this boldness to build competitiveness on top of it by having the public digital infrastructure that allows digital payments. I mean, it's amazing. You walk in rural India, nobody's using cash. How did that happen? One of the steps that Prime Minister Modi took was to say, 'I'm going to suck out small notes. Only big notes, and that's it. You cannot have small notes anymore.' People were saying, 'Oh, terrible. The economy is going to go down.' For a short period of time, there was a bit of slowdown. But the overall impact is digital payments are predominant. They're much, much more acceptable in society. So you have digital ID, public digital infrastructure, no small fiat money anymore in circulation, and all of a sudden payment cost goes down, entrepreneurial capacity shoots up, and the results are seen in the growth trajectory of India.