Is US economy sliding into recession amid government shutdown?
What's the story
The International Monetary Fund (IMF) has warned that the US economy is showing signs of weakness, but it has avoided a recession predicted by many experts six months ago. Kristalina Georgieva, IMF's Managing Director, noted that better policies, an adaptable private sector, and less severe import tariffs than expected have helped keep the US economy afloat.
Global perspective
Global growth slowing slightly this year and next: Georgieva
Georgieva also shared her thoughts on the global economy, saying that "we see global growth slowing only slightly this year and next." She said all indicators point to a world economy that has largely withstood acute strains from multiple shocks. This statement was part of a preview for the IMF's upcoming World Economic Outlook, which will be released during the annual meetings of the IMF and World Bank next week.
Tariff impact
US tariff shock less severe than anticipated
Georgieva also spoke about the impact of US tariffs on the economy. She said that the US tariff shock has been less severe than initially announced in April. The trade-weighted tariff rate is now around 17.5%, down from 23% in April, with countries largely skipping retaliatory tariffs. However, she warned that changing US tariff rates could lead to rising inflation if companies pass on more costs or if a flood of goods triggers further tariff hikes elsewhere.
Market concerns
Georgieva warns on financial market valuations
Georgieva raised concerns about financial market valuations, which are nearing levels last seen during the dot-com boom 25 years ago. She warned that a sudden change in sentiment could drag down global growth, especially hurting developing countries. She urged the US to take "sustained action" to lower its federal debt and boost household saving through favorable treatment of retirement savings. Her comments come as the US government faces a shutdown due to a political deadlock over a short-term spending measure.