IMF: US economy 'much better' than expected

The IMF chief said the US economy is "much better" than expected and the world is watching Donald Trump's policies.

The comments were made by Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), on January 10. In its latest estimate released in October 2024, the IMF said the US economy grew at a rate of 2.8% last year and 2.2% this year.

The updated forecast was released on January 17, days before Trump was sworn in. Georgieva said the world was watching the president-elect’s specific moves when he returns to the White House.

“It’s no surprise given the size and role of the US economy. The global community is paying close attention to the incoming administration’s policy direction, particularly on tariffs, corporate taxes, deregulation and government performance,” she said.

The White House in Washington, DC, USA in October 2022. Photo: AFP

According to the head of the IMF, inflation in the US is approaching the Federal Reserve's target. The labor market continues to stabilize and the Fed may wait for more data before cutting interest rates again. Ms. Georgieva predicted that interest rates will remain "a little higher for quite a while".

In a report released by Goldman Sachs Research in November 2024, the bank also predicted that the world's largest economy would exceed economists' expectations by 2025. Chief economist David Mericle assessed that recession fears have eased, inflation is trending toward 2% and the labor market is rebalancing.

“The US economy is in good shape,” he said. While the policy changes expected under Mr Trump could be significant, Mr Mericle did not think they would have a major impact on the trajectory of the economy or monetary policy.

Globally, the IMF forecasts stable global growth and continued declines in inflation this year . However, specific trends vary by region. China, the world's second-largest economy, is seeing deflationary pressures and domestic demand. Growth will slow somewhat in the European Union and slow slightly in India. Brazil faces slightly higher inflation.

A strong dollar is likely to lead to higher debt servicing costs for emerging economies and especially low-income countries. Despite reform efforts, low-income countries are in a position where any new shock would be “quite negative,” Georgieva said.

On January 9, the United Nations (UN) "World Economic Situation and Prospects" report forecast that the global economy will maintain 2.8% in 2025, similar to 2024, which is still slower than the average growth rate of 3.2% in the pre-pandemic period of 2010-2019.

“This poor performance reflects ongoing structural challenges such as weak investment, slow productivity growth, high debt levels and demographic pressures,” the report said.

According to the UN, US GDP growth is expected to slow from 2.8% last year to 1.9% in 2025. They estimate growth in China at 4.9% in 2024 and 4.8% this year. Meanwhile, Europe will recover modestly from 0.9% last year to 1.3% in 2025, supported by falling inflation and a recovering labor market.

Major central banks are likely to continue cutting interest rates, with global inflation expected to fall from 4% in 2024 to 3.4% this year. But monetary easing alone will not be enough to boost global growth or address widening imbalances, according to the UN.