More Resilient World Economy Is The Need Of The Hour, Not A Drift To Division, Says IMF Chief Kristalina Georgieva

IMF Managing Director Kristalina Georgieva on Thursday said all countries, large and small alike, can—and should—play their part to strengthen the global economy in an era of more frequent and severe shocks.

“A more resilient world economy is the need of the hour, and not a drift to division. Pushed hard enough, things that were not possible become possible, mountains that couldn’t be climbed are climbed, vested interests that would not retreat are overcome,” IMF chief said in a speech.

“The complexity of modern supply chains means imported inputs feed into a broad range of domestic products. The cost of one item can be affected by tariffs in dozens of countries. In a world of bilateral tariff rates, each of which may be moving up or down, planning becomes difficult.

“Ships at sea not knowing which port to sail to; investment decisions postponed; financial markets volatile; precautionary savings up. The secret to seizing the moment is to focus all energy not on preserving the old, but on building the new—a better balanced and more resilient world economy,” Georgieva pointed out.

The thought-provoking comments of the IMF chief come ahead of the 2025 Spring Meetings of the World Bank Group and the IMF to take place from April 21 to 26, in Washington, D.C.

The longer uncertainty persists, IMF MD said, the larger the cost. Rising trade barriers hit growth upfront. Tariffs, like all taxes, raise revenue at the expense of reducing and shifting activity—and evidence from past episodes suggests higher tariff rates are not paid by trading partners alone. Importers pay some part through lower profits, and consumers pay some part through higher prices.

“By raising the cost of imported inputs, tariffs act upfront. Of course, if domestic markets are large, they also create incentives for foreign firms to respond with inward investment, bringing in new activity and new jobs,” she said.

The IMF chief highlighted that countries should also renew their focus on internal and external macroeconomic imbalances. Internal balances between savings and investment are fundamental, and can tilt too far one way or another.

Protectionism, she warned, erodes productivity over the long run, especially in smaller economies. Shielding industries from competition reduces incentives for efficient resource allocation. Past productivity and competitiveness gains from trade erode. Entrepreneurship gives way to special pleadings for exemptions, protection, and state support. If domestic markets are large and domestic competition is vibrant, negative effects can be mitigated.

“Ultimately, trade is like water: when countries put up obstacles in the form of tariff and nontariff barriers, the flow diverts. Some sectors in some countries may be flooded by cheap imports; others may see shortages. Trade goes on, but disruptions incur costs.

“With cool heads, clear vision, and strong will, times of change can be times of renewal. The secret to seizing the moment is to focus all energy not on preserving the old, but on building the new—a better balanced and more resilient world economy," IMF chief added.

In trade policy, the goal must be to secure a settlement among the largest players that preserves openness and delivers a more-level playing field—to restart a global trend toward lower tariff rates while also reducing non-tariff barriers and distortions."

All countries can pursue policies for better internal and external balance, supporting collective resilience and wellbeing.

In China, we have been advising on policies to boost chronically low private consumption. In the EU, assertive fiscal expansion by Germany to facilitate defense and infrastructure spending will lift domestic demand, as would EU-wide policies to improve competitiveness by deepening the single market. Europe needs a banking union. Europe needs capital market union. And Europe needs fewer restrictions on internal trade in services. Taken together, fiscal easing and stronger integration would lift growth, increase resilience, and improve both internal and external balances.

In the US, the core macroeconomic policy challenge will be to put federal government debt on a declining path. Achieving this path will require significant reductions to the federal budget deficit—which among other things will necessitate elements of spending reform. Lowering federal debt would both strengthen resilience and reduce the current account deficit.

Reforms and rebalancing are for everyone. From ASEAN to the Gulf Cooperation Council, across the African continent and elsewhere, policymakers are taking action to strengthen their economies, improve regional ties, and reduce surpluses and deficits. We strongly support these efforts.

“In trade policy, the goal must be to secure a settlement among the largest players that preserves openness and delivers a more-level playing field—to restart a global trend toward lower tariff rates while also reducing nontariff barriers and distortions.”

Putting together all the recent tariff increases, pauses, escalations, and exemptions, it seems clear that the US effective tariff rate has jumped to levels last seen several lifetimes ago.

As the giants face off, smaller countries are caught in the crosscurrents. China, the EU, and the US despite having relatively low imports to GDP—are the world’s three largest importers. Size matters—their actions impact the rest of the world. Smaller advanced economies and most emerging markets rely more on trade for their growth, and are thus more exposed, including to tighter financial conditions. Low-income countries face the added challenge of collapsing aid flows as donor countries pivot to dealing with domestic concerns.

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