Transcript

PARTICIPANTS:

Moderator:

JOSE LUIS DE HARO

Communications Department

Panelists:

PIERRE-OLIVIER GOURINCHAS

Economic Counselor and Director, Research Department

PETYA KOEVA BROOKS

Deputy Director, Research Department

DENIZ IGAN

Division Chief, Research Department

 

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P R O C E E D I N G S

MR. DE HARO: Okay, so I think we can start.  Good morning, and welcome to those who are joining us here in the room.  Also, I want to say thank you and welcome to those who are joining us online.  I'm Jose Luis De Haro with the Communications Department at the International Monetary Fund.  And we are gathered here today for the launch of our World Economic Outlook Update titled Global Economy: Steady Amid Divergent Forces. 

First of all, I want also to take this opportunity to say that we are very pleased to bring the World Economic Outlook Update here to Brussels.  And I want to thank especially the National Bank of Belgium and its staff for hosting us today.  

Also, remind you, for those who are not familiar with the WEO cycle, the World Economic Outlook cycle, we normally publish two updates, one in January and the other one in July.  Those updates are shorter, and they only have a limited number of countries.  Then the full editions come in the spring during our Spring Meetings in April and our Annual Meetings in October.  I just want to remind also that the Annual Meetings this year will take place in Bangkok in Thailand.  

But what's best than to discuss all the content of the new World Economic Outlook Update that we’re joined here today by Pierre-Olivier Gourinchas.  He is the Economic Counselor and the Director of the Research Department.  Next to him are Petya Koeva Brooks, she's the Deputy Director of the Research Department.  And last but not least, we have Deniz Igan, she's Division Chief, also with the Research Department.  

As usual, Pierre-Olivier is going to start with some opening remarks.  Let me remind you that you can access the World Economic Outlook Update on our website, IMF.org.  There you will find also Pierre-Olivier’s blog, that this time has been also co-authored by our financial counselor, Tobias Adrian, and many other assets that might be helpful for your reporting.  

So let me stop here, and Pierre-Olivier, the floor is yours.  

MR. GOURINCHAS: Thank you, Jose.  Good morning.  Bonjour.  Guten Morgen.  Global activity continues to show notable resilience despite significant trade disruptions and heightened uncertainty.  According to our latest projections, global growth will hold steady at 3.3 percent this year.  An upward revision of 0.2 percentage points compared to our October estimates, with most of the improvements accounted for by the United States and China.  We have repeatedly revised our projections upwards since April of last year.  

Remarkably, global growth for 2025 and 2026 is expected to be stronger than projected back in October 2024, before the tariff disruption started.  As the global economy shakes off the immediate impact of the tariff shock, this resilience reflects offsetting forces.  The trade tensions constitute a major source of instability, as events of the last few days illustrated.  But other factors helped:  great agility of the private sector, which kept supply chains smoothly functioning, supportive financial conditions amid a tech AI investment boom, and stronger stimulus in some countries, especially China and Germany. 

Now global inflation will continue to decrease from 4.1 percent in 2025 to 3.8 percent this year and 3.4 percent in 2027, even if it remains above Central Bank targets for many advanced emerging and developing economies this year.  

Despite this, risks remain tilted to the downside, and let me mention a few areas of concern.  First, growth is concentrated in a few sectors, especially in information technology and artificial intelligence.  The IT boom has also been concentrated in the U.S., where IT investment as a share of output has surged to an all-time high.  This is generating positive spillovers globally through high demand for technology goods, most notably from Asia.  The IT boom has been supported by favorable financial conditions, helping to fund new capital spending.  But as the expansion accelerates, debt financing is becoming more prevalent, which could amplify shocks if returns fail to materialize.  

The comparison to the 1995-2000 dot-com boom, which I have pointed to already back in October, is instructive.  Our analysis suggests that the potential overvaluation of the U.S. equity market remains modest so far compared to the dot-com episode.  We have previously shown that a moderate correction in AI stock valuations coupled with tighter financial conditions could reduce global output by 0.4 percent in 2026.  

Yet the impact of a correction could still be broad for three reasons.  First, many critical AI firms are not listed, and their debt borrowing could be consequential.  Second, U.S. equity market capitalization is much higher now relative to output.  So a correction could have a larger effect on consumption.  Third, foreign investors' holdings of U.S. equities have increased significantly in recent years, increasing the risk of global spillovers.  Of course, the current tech boom also offers the promise of increased productivity, and should these gains materialize, we estimate global output could increase by 0.3 percent in 2026. 

Now, another source of fragility is the cooling of labor markets, with unemployment rates rising above their natural rate in many countries.  This raises the question of how broadly distributed the gains from economic growth are.  In the U.S., where the labor share is at an all-time low, despite strong productivity gains, concerns are rising that AI could well displace many workers. 

Now the question of unbalanced growth is also relevant when looking across countries.  China's growth model, increasingly reliant on exports, and the U.S. growth model, overly reliant on foreign financing, pose pressing challenges to global economic stability.  Beneath the surge in China's exports lies a transformed export basket, with expanded presence in the production of more complex goods, but a continued strength in production of less complex ones.  The risk is that without a sustainable rebalancing towards domestic demands in China and towards smaller public deficits in the U.S., protectionist measures could rise further, risking a disorderly economic adjustment globally.  

Now, the current environment is one that requires vigilance, preparation, and agility.  Vigilance in monitoring the buildup of financial fragilities, including leverage and weaknesses in non-bank financial institutions, preparation in rebuilding fiscal buffers, which is much needed in many countries.  The evidence suggests that fiscal discipline has eroded in recent years.  Governments are less willing or able to correct course when public debt rises.  Our own estimates suggest weaker fiscal discipline since the pandemic increased public debt by an additional 2 to 8 percent of GDP in advanced economies, more so than in emerging markets.  The risk here that countries will be unable to face the significant challenges ahead, in terms of population, aging, climate transition, national security, or ability to support the economy, should a large shock occur.  

Agility since Central Banks need to be ready to adjust course quickly, whether to tighten policy if demand pressures build up or ease rapidly, should labor market weaknesses persistent or a market correction occur.  For this, Central Bank independence remains paramount, allowing monetary authorities to concentrate on their mandate and deliver price stability.  Our October report found that weakened credibility of Central Banks, including the U.S. Federal Reserve, resulting in higher inflation expectations and lower global demand for U.S. assets, could reduce global output by 0.3 percent in 2026.  Unfortunately, threats to Central Bank independence are increasing and must be firmly resisted. 

Finally, as recent events illustrate, trade and geopolitical tensions can quickly resurface and threaten global economic stability.  The return to stable, predictable, and transparent trade rules would minimize disruptions, strengthening medium-term growth prospects worldwide.  For this, multilateral cooperation remains critical.  Thank you.  

MR. DE HARO: Thank you, Pierre-Olivier.  And before we open the floor to your questions, I just want to remind you of some ground rules.  If you have a question, raise your hand.  Wait until I call on you, and if I do, please identify yourself and the media outlet that you represent.  We're going to be taking questions here in the room, also from people that are joining us via Teams, and we also received already some questions via our Press Center.  

So with that said, also I just want to remind that we are here to discuss the contents of the World Economic Outlook Update.  So questions regarding country programs and other institutional issues might not be addressed in this forum, but I'm happy to put you in touch with the right team or person if these questions arise.  

So with that said, we are open the floor for questions.  Okay, I'm going to start with the lady.  

QUESTIONER: Good morning.  Amanda Mars from El País Newspaper.  Thank you so much.  You gave us a very good overview on the 2026 projections.  But the very first days of this January have been eventful, to say the least, with the U.S. intervention of Venezuela and the tensions regarding Greenland, the U.S. has threatened with tariffs and the European Union with a retaliation, also with tariffs.  Could you elaborate on this new risk, the threat that they pose on the 2026 outlook?  

MR. GOURINCHAS: Yes, and obviously geopolitical risks and further trade tensions are one of the risks -- one of the -- among the most pressing risks that the global economy is facing.  We're establishing our projections in the WEO under the assumption that the level of tariffs remains unchanged.  So we have, you know, current projections, for instance, an effective tariff rate that is estimated at around 18.5 percent for the U.S. against the rest of the world, and is assuming to stay at that level.  

So, of course, there could be disruptions.  We've seen that last year already.  There have been times in which there have been escalation of tariffs and then de-escalations.  So we've seen this volatility.  This volatility is bad for business decisions.  It's bad for investment, it's bad for consumption.  It leads to a state of uncertainty and probably increased precautionary saving.  So it affects global activity downward.  And that's certainly something that has been one of the drivers in 2025 and continuing into 2026, even as I explained, even if it's offset in our projections by other forces.  

So going forward, this is a major risk.  This is something that could materially impact growth if we have higher levels of tariffs, if we have higher levels of geopolitical tension.  And that's something that we are monitoring carefully.  

MR. DE HARO: So thank you.  Before we go back to the floor and we go to Teams, we have a question coming from Platss (phonetic) that goes as follows.  How do you expect U.S. military action in Venezuela and potentially in Iran to impact oil prices?  

MR. GOURINCHAS: So, on oil markets, the situation, if you want the starting point, is that oil prices have been broadly coming down throughout last year.  This is a situation in which there is, broadly speaking, ample supply of oil in the market.  And that is what is putting pressure down on -- on oil prices.  And that's also something that we are assuming in our baseline projection that oil prices would continue to decline moderately through 2026.  

Now, there are risks around that.  Of course, Venezuela and Iran are oil producers.  In the case of Venezuela oil production, the question is often about whether there could be an increase in oil supply coming from the recent developments.  Our assessment and the assessment of experts on this market is that the prospects for this are relatively limited, given the state of the infrastructure in Venezuela.  For Iran, Iran exports about 1.6 million barrels per day.  That's roughly 1.5 percent of world consumption. 

So, of course, if there were disruptions in oil exports coming from Iran, that would have an impact on oil prices; it would tend to increase them.  And then of course, there is a broader risk, which is that there could be disruption in the flow of oil in the region, not necessarily Iran's oil production, but also other countries' oil production flowing through the Straits of Hormuz.  And then that could lead to even more, even more of an increase in oil prices in really very adverse scenario.  

MR. DE HARO: Okay, so we are going to go to Teams before we come back to the floor.  I think the Guardian is online, so please come in. 

QUESTIONER: Hello, and thank you very much for the question.  It's Richard Partington from the Guardian.  Just wanted to ask when the projections for the Economic Outlook Update were finalized, and do these events for the last few days show downside risks are materializing?  Will it rely on retaliation?  We saw in the last year that much of the threatened tariffs did not materialize, and much of retaliation did not materialize either.  Does that tit for tat escalation represent the greatest threat to your forecasts?

MR. GOURINCHAS: On the date at which the forecasts have been closed, Deniz, maybe you want to come in.  

MS. IGAN: So our teams submitted their projections at the end of December.  So, before the whole day break, basically that's when we freeze our database.  

MR. GOURINCHAS: Now, on the broader question, on the, if I understood the question correctly, on whether we have a risk of a spiral of escalation, and of course, this is certainly something that would have a material impact.  In a sense, what happened in 2025 is we've seen also a reduction of the trade tensions that were initially, and the trade measures that were initially announced in April by the U.S. administration with the negotiation of trade deals with a number of countries, including the EU, for instance, and also very often a lot of moderation on the part of other countries in not escalating, not getting into a tit for tat and a spiral for on trade measures.  Of course, this means that the impact on the global economy remained -- remained more moderate than was initially projected back in April, and that explains some of the upward revision that we've seen through the year.  So if we were to enter a phase in which there would be escalation and tit for tat policies, as the question was framing it, that would certainly have even more of an adverse effect on the economy, both through direct channels, but also through confidence investment and potentially through a repricing by markets that would look at the situation and have to reassess what the value of financial markets is.  

MR. DE HARO: Okay, we're going to go back to the room.  Who has a question?  I'm going to go first there, and then I will go.  

QUESTIONER: Thank you.  Andres Stumpf (phonetic) from the financial newspaper Expansion.  I have a question in Spain.  I was surprised to see the country among the countries benefited from technological investments recently.  I wanted to know, because in the past growth has been associated mainly with strong consumption, tourism, and immigration, are we seeing something new, maybe change, a structural change there, or is it something punctual?  Thank you.  

MR. GOURINCHAS: So on Spain, we are seeing, and I will turn it over to my colleague Petya in a second, but just broadly speaking, I think the two important drivers remain.  On the one hand, on the supply side, increase in labor force, some of it associated with immigration, but also increase in labor force participation and second -- or employment rates.  And second, indeed a strength in services, in particular in tourism, which has been also helping the Spanish economy.  But Petya?

MS. BROOKS: Maybe just to add that we have indeed upgraded our forecast for this year to 2.3, which is an upward revision of point 3, which is among the larger ones in the euro area.  And we have seen very strong high-frequency indicators that just point to quite robust private consumption as well as investment.  So going forward, again, the savings rate in the -- in Spain is relatively high.  So I think we think that there is scope for that private consumption to keep supporting economic activity into 2026 and also 2027.  

MR. DE HARO: Okay, so we're going to go back to the floor.  I'm going to go first with the lady.  

QUESTIONER: Thank you.  Maria Vasliu (phonetic), Tonneau, Greece.  I will insist a bit on the issue of tit for tat.  And I would ask you directly, how do you think Europe should react to these latest tariff threats by the U.S. president?  Because already in Brussels, Brussels are exploring the possibility of imposing 93 billion worth of tariffs.  There are also, you know, mode, I mean, calls for the use of anti-coercion instrument.  So what do you think about this?  Thank you.  

MR. GOURINCHAS: Well, we, the IMF, will not be providing recommendations on what should be trade policy measures.  Generally speaking, we are advocating for all parties to try to find a solution that will keep the trading system open, that will maintain stable and predictable rules, and that will allow businesses to make investment decisions and supply chain decisions within a certain amount of certainty so that they can plan appropriately.  So certainly, the current environment is not conducive to that, and we would basically call for all the parties to find an amicable resolution to the current situation.  

MR. DE HARO: Okay, before we continue, I just want to ask Petya and Deniz to direct the microphones to themselves.  Thank you very much.  And after this announcement, we're going to go first to Teams, then I'm going to go back to the room.  I think that we have Yicai News (phonetic) online.  Can you hear us?  Weier (phonetic), can you hear us now?  

QUESTIONER: Yes, thank you.  

MR. DE HARO: Perfect.

QUESTIONER: This is Ware with Meteor Group.  So, a question on China.  China just reported its 2025 GDP growth at 5 percent, which aligns with IMF's revised estimate in this update.  So how does the IMF evaluate the underlying drivers of this 5 percent outturn?  And the WEO also notes that tactile wins, particularly AI, are offsetting trade headwinds in Asia.  So how specifically will this shape China's growth path?  Thank you.  

MR. GOURINCHAS: Thank you. So on China, yes, the growth numbers were just announced, I think, during last night, and for 2025 they came in at 5 percent, which was also our projection for the year.  That's an upward revision of 0.2 percentage point for 2025.  And we're expecting growth in 2026 to be at 4.5 percent.  That's also an upwards revision of 0.3 percentage point.  

And so, what we have in China is we have, on the one hand, we have relatively strong measures that were put in place through the years that helped support economic activity.  We have these measures and are expected to carry over into 2026.  We also expect that the effect of the trade shock there is -- are going to be fading.  There is, of course, there is a pause that is implemented for a year.  And so, that is providing some support to economic activity going forward, and that's why we have a revision to 4.5 percent.  

Now, more broadly, when we look at the Chinese economy and the numbers that were released this morning confirmed this, we still have a very imbalanced growth model in China, growth dynamics that relies a lot on the external sector and relies relatively less on domestic demand.  Domestic demand remains fairly weak, domestic consumption remains fairly weak.  And one of the signs that you have relatively weak domestic demand relative to production is that the Chinese economy is still in a situation that is very close to price deflation.  Price pressures are very, very low.  Inflation was effectively zero in 2025, is expected to go to 0.8 percent in 2026, but remains very low. 

And that is the core issue that the Chinese economy needs to address.  It needs to rebalance its growth model towards more domestic demand.  In order to do that, it needs to do more efforts to resolve the property sector problems in the property sector that are weighing down on demand and consumption.  And so our recommendations for the Chinese economy are to deploy more resources to clean up the property sector, remove some of the resources that are subsidies to production and manufacturing sector because they contribute to some amount of overproduction in the sectors, and in that way rebalance the economy.  

MR. DE HARO: And I promise I will get back to the floor, give me a second.  But as we're talking about Asia-Pacific, we have a question on India.  What's behind India’s growth story?  And it comes from Lalit Ja (phonetic), from IANS. 

MR. GOURINCHAS: Deniz, would you like to take that one?  

MS. IGAN: Sure. So for India, actually, we had quite a bit of positive surprises.  Our growth forecast was in the mid 6 percent.  But with the very strong outturns in the second quarter of 2025 and then the third quarter of 2025, we upgraded our forecast, and recent incoming high-frequency indicators also suggest that it's going to remain strong.  So just to give you the numbers for 2025, we are estimating 7.3 percent growth in India.  That's an upgrade of 0.3 percentage point.  And for 2026, we are expecting 6.4 percent, and that's another upward revision of 0.2 percentage point.  

What is the story behind these strong outturns?  Well, there are a number of factors, but one is that consumption, private consumption, has been quite strong even though, you know, there are headwinds on the exports side.  On the investment side, consumption has been the key driver.  And the reason for that is partly an increase in real incomes with the decline in inflation, but also very strong rural activity that we're seeing, and monsoon-related events that also helped with the -- with the agriculture harvest.  Going forward, we believe that this type of momentum should be also fostered with policy measures, including a continued push on the public investment front.  

Let me stop there.  

MR. DE HARO: Okay, now we're going back to the room.  We're going to go first with the gentleman with glasses, then we go with the lady behind, and then we'll go to you.  

QUESTIONER: Hello, good morning.  This is Gregorio Sorgi from POLITICO.  I had a question on the U.S.'s strong growth performance.  How do you expect the fact that the figures have been so much higher than Europe despite the introduction of tariffs?  Do you think that the impact of the tariffs still has to kick in?  And then I have a second question on the potential trade war between the U.S. and Europe.  Given on the economic models and the predictions that you had already made last spring, who do you think has more to lose between the EU and the U.S. if the measures that were threatened in April will come to fruition over the coming weeks?  

MR. GOURINCHAS: Yes.  So, on -- on the U.S., the U.S. is being revised upwards for 2025.  It's actually a sizable upwards revision.  We're expecting 2.4 percent growth in 2025.  That's a 0.3 percentage point upward revision.  And growth is expected to accelerate from 2025 to 2026, from 2.1 to 2.4 percent.  

So, of course, the tariff, the effect of the tariff is there.  When we look, and we unpack and try to unpack the effect of the tariff on the U.S. economy, it's certainly weighing down activity.  It's also contributing to more price pressures, although the effect in terms of the price pressure, the transmission of the tariffs into prices, has been partly muted so far.  What we find when we look at change in price at the retail level versus at the dock or wholesale level is a lot of the tariffs have been absorbed by the retailers and importers on the U.S. side.  So the tariffs are being paid, if you want, by U.S. firms at this point largely.  They are not yet heating the consumers, the customers, because the firms have not passed them through.  But we expect that this will -- this will happen partly in 2026, and that will contribute to some upward price pressure in the U.S.  In fact, we're expecting -- we're expecting inflation in the U.S. to have a little uptick before it comes down towards the end of the year and into 2027.  

So there has been an impact of -- of the trade, of the tariffs, and the trade tensions in the U.S.  But of course, the U.S. is also one of the main countries where we are seeing the AI tech investment boom.  And that is playing a big role when we're looking at overall business investment, when we're looking at activity in that sector that's contributing materially to the growth performance of the U.S. and is expected to continue, although maybe not at the same -- at the same pace.  

The third factor when you're looking at the U.S. economy is there is going to be some amount of fiscal stimulus going forward.  There hasn't been that much yet.  In 2025, the new budget was passed in July, and it is slightly expansion -- expansionary.  But at the same time, the U.S. government is also collecting tariff revenues.  And as I just explained, those tariff revenues are paid by U.S. businesses.  So there is a tax increase that's also on the other side of this.  So it was not particularly expansionary.  But as we move into 2026, there is going to be a little bit more of an expansionary component for the U.S. economy.  So this gives you a little bit of the background for our projections for the U.S. economy.  

Now, coming to the trade war, it's interesting, you said, who stands to lose more?  And that's the right way to frame it because, as we all know, there are no winners in the trade wars, and that's the thing to remember.  It's a little bit hard to speculate on this.  I just want to say that increasing tariffs is something that will hurt both the country that is putting the tariffs on, as we've seen, as I've just described for the case of the U.S., of course, it's also hurting other countries.  So this is a situation where tariffs and retaliation and increasing tariffs would put downward pressure on global activity.  

We've seen a very resilient trade environment in 2025.  We had a lot of trade front loading.  The first half of the year was quite remarkable.  There was a lot of trade going on as businesses were trying to position their inventories in different place, trying to reorient their supply chains, trying to prepare for the tariffs that were coming, were announced but were not yet implemented.  So we've seen that agility, we've seen that responsiveness of the private sector, and trying to find ways around it.  But there is a limit to that, and obviously, if the tariffs were to escalate significantly, they could have a very sizable impact on the global economy.  

And I just wanted to refer here, we had in our October report we had a scenario where there would be an increase in tariffs and disruptions in supply chains.  We looked at what this would look like with some amount of retaliation, and we simulated that, and we found that it would bring output down in 2026 at a global level by about 0.3 percent.  So a sizable effect.  

MR. DE HARO: Okay, I promise I will get back to the -- to the room.  But I see that we have a question from Business News Tunisia about Tunisia.  Unfortunately, Tunisia is not part of the World Economic Outlook Update, but we have received questions on countries in the region that are included.  For example, Egypt and Saudi Arabia.  So, basically, the questions go as follows: “Can you let us know what's behind Egypt's economic projections?”  This comes from Amwal Al Ghad magazine.  And then we have a similar question on the outlook for Saudi Arabia that comes from Sharq Al-Awsat newspaper.  

MR. GOURINCHAS: Petya?

MS. BROOKS: Okay, let me start with Egypt.  For Egypt, we have upgraded our forecasts, and we're expecting growth to pick up from 4.4 in 2025 to 4.7 this year and 5.4 in 2027.  And in all three cases, we've had upward revisions.  This is what's behind us, is the strength of the non-oil manufacturing sector as well as tourism and telecom sector, which is offsetting the weakness in the Suez Canal activity, which we had last year.  And going forward, we're expecting that activity in the Swiss Canal to stabilize and to pick up, which is again one of the reasons behind the pickup in growth going forward, as well as the benefits from some of the structural reforms that the government has been implementing on the supply side.  Which again is the reason why we have higher growth, and at the same time, we do not have higher inflation.  If anything, actually, inflation is coming down.  

Now turning to Saudi Arabia, this is another country that we have upward revisions for output both this year, but also going back to 2025 and going forward to 2027.  Now, there are several reasons for that.  For 2025, we saw significantly higher refined oil products.  The production of those was higher than what we'd anticipated.  And in addition to that, we've seen a fairly robust domestic demand, which is linked to the Vision 2030 reform plans that the government has been implementing.  So that together with -- with upward historical revisions to the data, all these factors are behind our higher forecasts.  

I'll stop here.  

MR. DE HARO: Okay, going back to the room.  Go ahead.  

QUESTIONER: Okay, thank you.  I'm Alessandra Migliaccio from Bloomberg News.  I had two questions.  So one is in the report, you outline a scenario in which a reevaluation of productivity growth expectations around AI could lead to an abrupt financial market correction, and that would spread beyond AI-linked companies.  Now, I was wondering, what is the IMF monitoring to be on watch for any signs of a potential bubble bursting?  And then the other question was simply, given the amount of borrowing of countries across the globe, are you concerned about that?  Is that a potential risk?  How much of a potential risk is that?  

MR. GOURINCHAS: Yes.  So on AI, of course, this is something that we are -- we are watching carefully.  And if you look at the blog that Jose mentioned that we just released this morning, we kind of do a little bit of a deep dive into where we think we are.  And, of course, there is uncertainty around that.  And as I mentioned, we can look at usual metrics, things like market valuations, we can look at profitability, and those look actually pretty good when you compare things to the dot-com episode.  One of the differences that a lot of the firms doing investment in the AI sector are actually quite profitable.  They have robust earnings, and that has allowed them to finance a big part of their investment so far.  The concern is going forward, the scale of investment that's reported by those firms themselves or people who follow the industry vastly exceed the cash flow that these businesses have.  So they will have to rely on some external financing, and some of it will come from -- from debt financing.  And that's when things become a little bit more dangerous and need to be watched carefully.  

So, signs of increasing leverage, signs of opacity in the financing structures, understanding clearly where the exposure might be lying in case there is a market correction.  Those are the type of things that we -- we are watching.  We're watching also what happens in case there is the upside scenario that you mentioned, in case there is increased productivity coming from AI.  It will also have some impact, for instance, on labor market.  So we're looking very carefully at how it might impact the demand for skills, the demand for workers, what type of workers would benefit, what type of workers might be facing a more difficult environment.  So we're watching across both labor market, economic activity, financial markets.  We're trying to really have a complete picture.  But of course, things are moving -- are moving pretty fast.  

More generally, your second question was on levels of debt.  Certainly, that is something that is worrisome.  For many countries, many advanced economies, levels of public debt are too elevated.  And the trajectory in terms of fiscal deficits, primary deficit is not sufficiently strong to bring back those debt levels within a more comfortable range or to stabilize, or sometimes it's just even to stabilize the public debt levels at the level where they are relative to -- relative to outputs.  For a number of countries, there is a need to do more, and the need to do more, as sometimes the question is why?  Why do we need to do more after all countries have been able to borrow?  So what's the problem?  Well, the problem is that we were living for many years in a period of low interest rates and relatively sustained growth.  And a period in which you have low interest rates, rate and relatively sustained growth is a period where public debt is rarely a problem.  

But we are now in a period where growth is expected to moderate in the medium term, and interest rates are higher, and debt levels are more elevated.  So this is an environment in which the debt equation, if you want, is not as pleasant and requires tougher actions.  And if these actions are taken, then then the conditions under which countries are borrowing, the yields at which they can fund themselves will come down.  And that will reinforce the good dynamics.  If they don't, then the yields will keep going up, and then that will reinforce the bad dynamics.  

So there is a sense in which it's important to get on the right path there.  It doesn't have to be austerity immediately.  It has to be a credible, gradual path that gets countries where they need to be in order to have sufficient fiscal space.  

MR. DE HARO: Okay, we're running out of time.  I'll get back to you.  But as I want to touch on mostly every region, I'm going to combine here two questions.  One, it's going to be on Africa.  Basically, ‘what's behind the growth in Sub-Saharan Africa and what does this projection represent in terms of real consumption or production?’  This comes from Ecofin Agency.  And then we're going to turn to Latin America.  We have two questions.  One “on the projections for Brazil, what's behind that?”  This comes from Exame and then prospectives for Mexico from El Sal.  Then we will get back to the room.  I know that there's a lot of people also on Teams that have many questions.  We will try to do this as.  As soon as possible.  

MR. GOURINCHAS: Maybe Deniz for Africa and then Petya?

MS. IGAN: Yeah, quickly on Africa. So, actually, Sub-Saharan Africa is another region where we had some upgrades in our -- in our forecast.  For 2025, the turn was 4.4 percent, which is 0.2 percentage point higher than what we had projected.  And for 2026 and 2027, we are expecting 4.6, which is a cumulative 0.3 percentage point higher than what we were anticipating in October.  And the reason behind these upgrades is basically threefold.  One is the buoyant prices in some commodity prices, including gold, copper, coffee, and the region has exporters of these commodities.  Another reason is the macroeconomic stabilization efforts that started paying off in some key economies like Ethiopia and Nigeria.  And the last reason perhaps is the ongoing structural reforms in another large economy of the -- of the region, South Africa.  

So this combination of favorable commodity price movements and more predictable, more stable macroeconomic environment help the region.  And one other reason for the better than expected performance and upgrades, also, favorable global financial conditions, external borrowing costs have come down.  Generally speaking, they have improved relative to October, and with this, you know, a better outlook.  

That said, risks remain high, including cuts that we are anticipating in our forecast on international development assistance, which could affect some economies, lower-income, fragile economies, particularly in the region.  And also correction in global financial conditions, as Pierre-Olivier was alluding to, would also hurt these economies.  

Let me stop there.  

MR. BROOKS: Okay, let me start with Mexico and then turn to Brazil.  

So for Mexico, we saw relative weakness last year in 2025.  So we've downgraded our numbers to 2.6.  And what's behind that is the tight monetary and fiscal policies that were implemented, which were also needed in order to bring inflation down, together with the headwinds from the trade tensions.  Now, for this year and for next, our forecast had remained unchanged, and we are expecting a recovery as fiscal policy is expected to be broadly neutral, as well as the impact of monetary policy is expected to ease gradually.  

Now, when it comes to Brazil, we are expecting moderation in growth from 2.5 last year to 1.6 this year.  For this year, we have a downgrade in that forecast.  And again, this is related to the impact of the tight monetary policy setting, which is needed in order to bring inflation down.  And we think saw signs of that.  The impact of the -- we saw lower than expected output from the interest-sensitive sectors in the second half of last year, which is carrying over into 2025.  Now going forward, we're expecting those effects to kind of to play out.  And in the in 2027 and beyond, we expect expecting growth to pick up, also related to the pro-growth agenda and the income tax reform, as well as the expected monetary policy cuts.  

Let me stop here.  

MR. DE HARO: Okay, we are over time.  So I'm going to go one last time to the floor.  If anybody has an additional question, please.  And I am aware that there are some questions that have not been answered about the growth in Germany and others, and we can answer those bilaterally.  So please go ahead.  

QUESTIONER: Thank you.  You mentioned the importance of Central Bank independence.  So my question is, what would be the effect on the world economy of reduced independence of the Federal Reserve?  

MR. GOURINCHAS: Yes.  So, Central Bank independence is absolutely critical.  I think it's one of the most important lessons of the last four years.  When we look at the inflation episode of the 70s and we compare it with the inflation episode we had, and here I'm talking about advanced economies.  In the following of COVID, there were very, very different dynamics.  And the big difference between the dynamics we had back in the 70s and the one in the 2000s was Central Bank credibility.  Central Bank credibility allowed for disinflation between 2021-2024 without a recession in advanced economies.  There were slow growth in parts of Europe, for instance, that were related to high energy price and other things that was not related to the surge in inflation that Central Banks were trying to tackle.  

So that disinflation without a major recession is a major achievement.  Where was that credibility coming from?  Largely from the fact that Central Banks are trusted to deliver price stability, and they are trusted to deliver price stability because there will not be interference with their capacity to deploy the tools they are at their disposal to achieve their mandate, which always includes price stability.  Sometimes, as a dual mandate, like the Federal Reserve also includes employment.  So that is the reason it needs to be preserved.  

So what would happen if we don't have as much Central Bank credibility?  And again, that's something that we looked at in one of our scenarios in our October report.  You would have a de-anchoring of inflation expectations.  Everyone would understand that there wouldn't be as much focus on maintaining price stability.  As a result, there would be more inflation expectations.  More inflation expectations means more inflation.  It means more volatility on currency market.  It means more macroeconomic instability and means less growth.  So, we would have a much more difficult task to restore price stability if we lose that credibility.  That's the main channel through which lack of loss of Central Bank credibility that would result from loss of independence would manifest itself.  

MR. DE HARO: Okay, so we are definitely out of time, but I want to thank you all on behalf of Pierre-Olivier, Petya, Deniz, the Research Department, and the Communications Department of the IMF.  I also want to reiterate our gratitude to the National Bank of Belgium for hosting us today.  I will direct you to IMF.org if you want to download the World Economic Outlook Update.  And if you have additional questions or comments, please direct them to media@imf.org.  Thank you very much, and I hope that you have a good rest of your day. 

 

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