## Toward a Better Balanced and More Resilient World Economy

_IMF News, April 17, 2025_

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**Canonical URL:** [Toward a Better Balanced and More Resilient World Economy](https://www.imf.org/en/news/articles/2025/04/17/sp041725-spring-meetings-2025-curtain-raiser)

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## Bibliographic details
- Published: April 17, 2025

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### Part one: What is the context?
- Trade tensions have intensified after a long buildup—described as a pot that was bubbling for a long time and is now boiling over.
- Root causes highlighted:
  - Erosion of trust in the international system and between countries.
  - Uneven distribution of gains from global economic integration: communities hollowed out by jobs moving overseas; wages repressed; price effects from supply-chain interruptions.
  - Rise in trade distortions—tariff and nontariff barriers—feeding perceptions of unfairness.
- Empirical and illustrative references in the speech:
  - Convergence toward a low and stable U.S. effective tariff rate stalled in the last decade (Figure 3).
  - A rising count of net new subsidy measures by major jurisdiction (Figure 4) indicates nontariff barriers on an upward trend.
- National security considerations and self-reliance:
  - Strategic goods (from computer chips to steel) increasingly viewed through a national-security lens, favoring domestic production even at higher cost.
- Structural shifts:
  - Industry increasingly prioritized over services; national interests increasingly trump global concerns; assertive actions provoke assertive reactions.

### Part two: What are the consequences?
- Overall assessment: Significant.
- Tariff developments:
  - U.S. effective tariff rate has jumped to levels last seen several lifetimes ago (Figure 5); other countries have responded.
- Spillovers and size effects:
  - China, the EU, and the United States are identified as the world’s three largest importers despite relatively low imports to GDP (Figure 6); their actions have outsized global impact.
  - Smaller advanced economies and most emerging markets are more trade-dependent and thus more exposed, including to tighter financial conditions.
  - Low-income countries face collapsing aid flows as donors pivot to domestic concerns.
- Three specific impact observations:
  - Uncertainty is costly: complexity of modern supply chains makes planning difficult; outcomes include delayed investment, volatile financial markets, higher precautionary savings, and logistical disruptions.
  - Rising trade barriers hit growth upfront: tariffs raise costs (importers through lower profits, consumers through higher prices) and act quickly by raising the cost of imported inputs; inward investment responses can offset this but take time.
  - Protectionism erodes productivity over the long run, especially in smaller economies: shielding reduces incentives for efficient resource allocation, weakens entrepreneurship, and hurts innovation—mitigated only when domestic markets are large and competition is vibrant.
- Financial market risks:
  - Protracted high uncertainty raises the risk of financial market stress; recent unusual movements in key bond and currency markets are noted (Figure 7). The dollar depreciated and U.S. Treasury yield curves “smiled” despite elevated uncertainty.
- Forecast implications:
  - The upcoming World Economic Outlook (to be released early next week) will quantify costs; it will include notable markdowns to growth projections, but not recession, and markups to inflation forecasts for some countries.
  - Determined policy actions to resolve differences and rebalance can deliver better outcomes.

### Part three: What can countries do? (Policy recommendations)
- Strengthen domestic fundamentals and rebuild policy space:
  - Take resolute fiscal action to rebuild policy space with gradual adjustment paths that respect fiscal frameworks.
  - Provide targeted and temporary fiscal support only if shocks necessitate renewed fiscal measures.
  - Preserve monetary credibility: monetary policy must remain agile and credible, supported by strong commitment to central bank independence; central bankers should closely monitor data, including higher inflation expectations in some cases.
  - Maintain strong financial regulation and supervision; monitor and contain rising risks from nonbanks.
  - Emerging market economies should preserve exchange rate flexibility as a shock absorber; consider IMF’s Integrated Policy Framework for guidance on temporary measures.
- Low-income country priorities:
  - Strengthen domestic resource mobilization and seek international support to improve reform capacity and secure crucial financial assistance.
- Public debt and restructuring:
  - Countries with unsustainable public debt should move proactively to restore sustainability, including by seeking debt restructuring where appropriate.
  - The Global Sovereign Debt Roundtable will publish a playbook to assist country authorities considering debt restructuring.
- Lift growth potential through structural reforms:
  - Reforms recommended include banking, capital markets, competition policy, intellectual property rights, and AI preparedness.
  - Governments should reduce obstacles to private enterprise and innovation—“eliminate self-inflicted injuries.”
- Rebalancing internal and external positions:
  - Renew focus on internal balances (savings and investment) and external current account balances; fiscal, monetary, exchange rate, and structural policies are key levers.
  - Internal rebalancing improves stability and reduces the risk of sudden stops to capital flows.
- Distributional policies:
  - Cushion adjustment costs on those who lose out; distributional policies are essential to bridge good economics and good politics.
- Multilateral cooperation in a multi-polar world:
  - In trade policy, seek a settlement among the largest players that preserves openness, restarts the global trend toward lower tariff rates, and reduces nontariff barriers and distortions.
  - Allow private agents time to adjust to transitions; aim for a more resilient world economy rather than division.

### Country-specific guidance and examples
- China:
  - Advise policies to boost chronically low private consumption, including:
    - Dial back industrial policies and pervasive state involvement in industry.
    - Improve social safety nets to reduce precautionary savings.
    - Provide fiscal support to address property sector weaknesses.
  - Support a warmer transition from manufacturing to services as economies develop (Figure 12).
- European Union:
  - Fiscal expansion by Germany to facilitate defense and infrastructure spending would lift domestic demand.
  - EU-wide policies to improve competitiveness by deepening the single market, pursue banking union, pursue capital market union, and reduce restrictions on internal trade in services.
- United States:
  - Core macro challenge: put federal government debt on a declining path.
  - Achieving this requires significant reductions to the federal budget deficit, including elements of spending reform; lowering federal debt would strengthen resilience and reduce the current account deficit.
- Broader regions:
  - From ASEAN to the Gulf Cooperation Council, across Africa and elsewhere, policymakers are taking actions to strengthen economies, improve regional ties, and reduce surpluses and deficits; these efforts are supported.

### IMF role and closing
- The IMF will help countries manage macroeconomic adjustment and advance reforms.
  - Currently, 48 countries are relying on IMF balance of payments support, including Argentina, where market-oriented reforms are underpinned by the IMF’s newest and largest program.
- Institutional forum:
  - The upcoming Spring Meetings (a gathering of 191 IMF member countries) are expected to provide a vital forum for dialogue.
- Final message:
  - Challenge contains opportunity: with cool heads, clear vision, and strong will, times of change can be times of renewal. Focus energy on building the new—a better balanced and more resilient world economy.

*As prepared for delivery by Kristalina Georgieva, Managing Director, IMF, April 17, 2025.*

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## References

- [https://meetings.imf.org/en/2025/Spring](https://meetings.imf.org/en/2025/Spring)
- [https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva](https://www.imf.org/en/about/senior-officials/bios/kristalina-georgieva)
- [PRESS CENTER](http://presscenter.imf.org/)
- [World Economic Outlook](https://www.imf.org/en/Publications/WEO/Issues/2025/04/22/world-economic-outlook-april-2025)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2025/04/17/sp041725-spring-meetings-2025-curtain-raiser_