IMF Chief Says Recession Risks Are Rising

[00:00:00] Speaker 1: I am here at the International Monetary Fund with its managing director, Kristalina Gyorgeva, at a pretty intense moment for global trade, for global relationships, and at a time where some of the major members of the International Monetary Fund are entering into what looks like a trade war with one another. So at this moment, how different is the IMF's role that it has been traditionally, given the landscape we're looking at? [00:00:24] Speaker 2: Thank you for having me on the program. We are created to bring countries together. [00:00:32] Speaker 3: And it is valuable when there are no problems, even more valuable when they need to find solutions to issues that divide them. So in that sense, very timely meeting. I very much look forward to hear from the membership how they see steering through this more turbulent time. [00:00:54] Speaker 1: One thing that you talked about in the curtain raiser was this idea that some members or some people, actors, were maybe gaming the system in terms of free trade and weren't necessarily being honest actors. Does the IMF have a role to play in policing that? [00:01:11] Speaker 3: The major role is for the World Trade Organization. I started the day with Ngozi and we talked exactly about that. What can be done so some of the shortcomings of the past can be corrected. We also have a role. It is in our articles of agreement to promote trade. And our role is through the surveillance function we perform. We take the pulse of every economy almost every year. And then we come up with an assessment of what are the trends for this economy, how they interject with the rest of the world. And as we do that, of course, we look at trade. Why? Because trade is an engine for growth. And what we see these days is that when trade goes backwards or slows down, that has implications for global growth. As you know, we just projected the growth expectations for 2025. We are downgrading by half a percentage point from 3.3 to 2.8%. Our forecast for the world, we are downgrading our forecast for almost all countries, including the United States, as a result of trade tensions. [00:02:47] Speaker 1: Yeah, one thing that in that world economic outlook, you put the chance of recession in the United States up to about 40% from 27% back in January when you first published it. If the tariffs stay as they have been proposed from the United States, do you expect that chance to go up materially? [00:03:07] Speaker 3: This is based on the announcements of tariffs that have been then suspended. But not for China. So it's a complicated story. The short answer is that we are operating at a time of very high uncertainty. If we see faster resolution of trade tensions that would possibly lift up projections for global growth, great for investors, great for families. If, however, we do not succeed and uncertainty remains very high, tariff problems hang on our head for much longer, then we actually can see even further reduction in global growth. And then the danger of recession looms bigger. What is our advice? Please talk with each other, find a way to resolve differences, and above all, reduce uncertainty. Uncertainty is bad for business. [00:04:19] Speaker 1: And I think a lot of people have raised that issue. There has been speculation, including by this administration, that the United States could potentially even withdraw from the IMF. Do you see that as likely or possible? Do you have contingency plans for that? [00:04:34] Speaker 3: We have very good relations with the United States. We have traditionally worked very closely with each and every U.S. administration. We have now established relations with this administration. The United States is carrying out reviews of its participation in international organization. This is very fair. They have the right as a member to look into the mirror and say, do we have value from participation at the IMF? And I can tell you, I'm convinced that they look at this and they say, yes. Why? First, we are the only institution that can rescue countries in trouble. There are many countries that the U.S. cares about, that the fund is there to help them in a moment of high trouble. Two, we are the only financial institution, Lisa, that is like a savings bank. The U.S. puts money, we lend, then we give it back to the U.S. with interest. In the last two years, we have paid $3.1 billion in interest to the United States. So, you know, the concern is, are taxpayers of the United States paying? In the case of the fund, no. And three, we are promoting things that the U.S. cares deeply about. Private sector-led growth, discipline, transparency, accountability. And I think for all these reasons, and also let me not forget, where are we? We are sitting with you two blocks from the White House. I think that the outcome of this review for the IMF would be, yes, great institution, we stay. [00:06:18] Speaker 1: Does it become more difficult and incompatible for China and the U.S. to both remain members? [00:06:25] Speaker 3: Well, they talk to each other within the IMF membership arrangement. And even if they are in a very tense place, it is good to be able to talk with each other. Also to know where this country is headed. I'll tell you, I was, as you know, I'm a Bulgarian. I grew up on the other side of the Iron Curtain. And I remember vividly during the Cold War, there was something created called Economic Commission for Europe that had Europe and the Soviet Union and the former Soviet bloc, the United States and Canada. Why was it created? So there is space to talk with each other. Now, we are this space, we exist, and I think that the benefit of also putting pressure for directions for the United States to have a place for that is actually higher than maybe [00:07:30] Speaker 1: the naked eye would see. Another role of the International Monetary Fund is to monitor financial stability. It's an important role, especially right now, given all of the turmoil that we've seen in markets, there's been some speculation about whether President Trump could fire the Fed chair. And I'm wondering, does that concern you as a threat to financial stability if Jerome Powell were to be removed from his office before his term ends? [00:07:56] Speaker 3: We know from many, many, many decades of experience that central banks are essential for price stability. They are essential for financial stability. And they have very important instruments for it. They have the rates that they can impact. They can step up. They have one instrument that I want to emphasize, which is credibility. And credibility comes with independence. So if we want the comfort that when the next financial stress comes, then the Fed can act decisively, as it did last summer when we had the California story popping up. This particular instrument, credibility, is really very valuable to protect. [00:08:48] Speaker 1: At this point, looking out, what is your biggest concern when it comes to financial stability at a time where there might be a seismic change in terms of the trade structure of the global economy? [00:08:59] Speaker 3: My biggest concern is that the level of uncertainty is virtually off the charts. Because as long as it is so high, investors would be reluctant to make investment decisions, consumers would be postponing their purchases, and we will drive the economy into what you ask me, could it happen that is a recession? We do not project recession in our assessment of where the world is headed. But if we have this cloud of uncertainty coming lower and lower, making it difficult for the business community and for households to take decisions, we could have a self-inflicted injury that I guarantee we would regret. I hope here in these meetings people would talk with each other and they would lift up that cloud of uncertainty. [00:10:14] Speaker 1: Is there ever a moment like this that you've experienced before? [00:10:17] Speaker 3: You know, here I am, I have been fortunate to see massive transformation. My own country came from central planning into markets and it was a very dramatic experience. What did I learn? What did I learn? That a shock is an incredible opportunity. The impossible becomes possible. Germany lifted up its dead break. And I hope that countries would look into this moment and then they would take the mirror and say, what is it that I can do for my own country that I have been reluctant, shy doing? And then maybe we will see advancements of reforms that would bring better opportunities to people. [00:11:09] Speaker 1: Kristalina Georgieva, thank you so much for taking the time. And now I'm going to send it back to you, Carol and Tim. That was Kristalina Georgieva, the Managing Director of the International Monetary Fund. All right, Lisa, thank you.