At the APEC Leaders’ Retreat in Lima, Peru, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), delivered an insightful address reflecting both optimism and caution for the global economy. Her remarks highlighted significant achievements in combating inflation while pointing to critical challenges that require urgent policy action.

The Inflation Milestone

“Let me start with the good news,” Georgieva began. She celebrated the retreat of inflation across the United States, Europe, and Asia. Unlike past inflationary periods, this progress was achieved without plunging economies into recession, marking a significant policy success. According to Georgieva, this accomplishment was fueled by “resolute monetary policy action, easing supply chain constraints, and moderating food and energy prices.”

The global economy continues to grow, with the IMF projecting a 3.2% growth rate for both 2024 and 2025. Notably, APEC economies are set to outperform the global average this year, underscoring the region’s economic dynamism.

However, Georgieva warned that while inflation may be falling, “the higher prices people feel in their wallets are here to stay.” The lingering burden of elevated costs could dampen public sentiment despite macroeconomic improvements.

Slower Growth and High Debt

Despite positive growth, Georgieva painted a sobering picture of the post-pandemic economic landscape. Global growth is now slower than the pre-pandemic average—3% over the medium term compared to 3.8% in previous decades. This slowdown coincides with a troubling legacy of high public debt, which now stands at 100% of global GDP.

“High interest rates raise debt service, and low growth hurts revenues,” she explained, highlighting the pressure this combination places on government budgets. Meanwhile, the demands for public spending—on education, infrastructure, and social services—remain vast, particularly in aging societies.

The Fractured Global Trade Landscape

Georgieva also addressed the decline of global trade as a growth engine, a trend exacerbated by geopolitical tensions, national security concerns, and rising protectionism. “The retreat from global economic integration… is visible in a mushrooming of industrial policy measures, trade barriers, and protectionism,” she said. In 2024 alone, over 3,000 new trade restrictions were introduced worldwide, signaling a challenging environment for free trade.

The Twofold Policy Challenge

In this complex economic landscape, Georgieva outlined two critical policy priorities for APEC leaders:

1. Fiscal Consolidation: Policymakers must rebuild buffers for future shocks while ensuring space for essential public investments, particularly for green and digital transformations. She stressed the importance of prudent fiscal rules, even in a political climate increasingly inclined toward “borrow-to-spend” strategies.

2. Structural Reforms: To lift growth potential and energize job creation, Georgieva urged leaders to pursue ambitious reforms. This includes mobilizing private capital, improving productivity, and strengthening institutions. “Good policy design, good communication, and help for those who will lose out” are essential for progress, she said.

The Role of APEC

Georgieva applauded APEC’s focus on fostering trade and cooperation, calling it essential for raising growth and addressing global challenges. “Economic integration and multilateral action will remain essential for solving global problems,” she emphasized, pointing to the region’s efforts to promote sustainability, digitization, and resilience.

A Call for Unity

As Georgieva concluded, she expressed the IMF’s unwavering commitment to supporting APEC economies. “We stand ready as partners, always available to assist with impartial economic analysis, tailored policy advice, and financial support to members hit by shocks.”

Her closing remarks underscored the importance of collaboration in preserving economic progress. “Working together, as APEC shows, remains essential,” she said, reaffirming the value of unity in navigating an uncertain economic future.

Georgieva’s remarks are a timely reminder of both the progress made and the hurdles ahead. They highlight the importance of sound policy choices and multilateral cooperation in steering the global economy toward a sustainable and inclusive future.