IMF Issues Year-End Warning on Global Financial Fault Lines

 

IMF chief Georgieva to unveil China audit results after tariff surge; Fund warns on oil price risks and details 'historically high' US effective tariff rate.

 

The International Monetary Fund (IMF) has concluded its final media briefing of 2025 on 4th December (US local time) by offering a cautious outlook on key macroeconomic flashpoints, from the US-China trade tensions to oil price volatility and the complexity of digital finance.

 

Julie Kozack, director of the Communications Department at the IMF, confirmed that the Fund remains deeply engaged in global discussions, with a focus on stabilising major economies against significant headwinds.

 

The IMF is placing significant focus on the two largest global economies, with the results of its annual review of the Chinese economy due next week.

 

Managing Director Kristalina Georgieva will visit China next week to participate in the press conference on December 10, where she will share the preliminary findings of the Fund's annual Article IV audit.

 

 

First Deputy Managing Director Dan Katz was in China earlier this week for discussions under the review, which began on December 1.

 

The Fund is keenly monitoring the trade deal being negotiated between Chinese and US officials, which analysts suggest could significantly influence Chinese economic growth for years to come.

 

China's export-oriented economy has notably struggled to gain momentum since the current US administration took office, with economists estimating that US tariffs have already reduced China's export growth by approximately two percentage points, or roughly 0.3% of its gross domestic product.

 

 

While Kozack declined to give specific details on the Article IV findings ahead of the official release, she confirmed the IMF was "encouraged" that the US and China had been engaging in substantive discussions to resolve trade tensions.

 

Crucially, the IMF provided a firm assessment of US tariffs.

 

Kozack stated the IMF estimated the US statutory effective tariff rate was between 16% and 18%, while the effective rate—the revenue actually collected—was now around 10%.

 

Both figures are "far higher than a year ago," reflecting the ongoing impact of the trade war.

 

 

 

 

Japan's Policy Balancing Act

First deputy managing director Katz is now in Japan for bilateral meetings with authorities, following his China trip.

 

In Japan, the IMF anticipates strengthening growth, projecting an acceleration from 0.1% in 2024 to 1.1% in 2025, driven by robust domestic and external demand.

 

The Fund assessed the government's recently announced supplementary budget as smaller than market expectations, leading to a lesser expected impact on next year's fiscal deficit.

The IMF remains supportive of the Bank of Japan’s monetary policy, which it deems "appropriately accommodative," but stressed the need for a flexible and data-dependent approach given the environment of high uncertainty.

 

 

 

Oil Price Risks and Saudi Fiscal Policy

While the IMF did not offer a direct commentary on oil price movements in the briefing, its attention to the fiscal stability of major producers was made clear through a related statement on Saudi Arabia.

 

The Fund welcomed the recalibration of Saudi Arabia’s Vision 2030 spending plans.

 

 

Kozack referenced the need for policy to avoid "pro-cyclicality," suggesting that the new fiscal strategy would act as a crucial buffer to prevent state spending from "magnifying the impact of lower oil prices on growth."

 

This counsel confirms the IMF is highly aware of the risk of oil price weakness and is actively monitoring how the Kingdom’s spending plans will maintain fiscal stability against that volatility.

 

 

 

The Rise of Stablecoins

The IMF used the briefing to announce the release of a new departmental paper entitled "Understanding Stablecoins."

 

This focus highlights the growing regulatory priority being given to digital assets, recognising their potential to impact traditional financial stability if not properly governed.

 

The release aligns with broader efforts by the IMF and the Financial Stability Board (FSB) to issue comprehensive policy recommendations on regulating this fast-growing sector of digital finance.

 

 

 

Russia-Ukraine Conflict

The Fund remains deeply involved in supporting Ukraine through a four-year Extended Fund Facility (EFF) arrangement.

 

The IMF estimates Ukraine’s total financing gap over the programme's duration to be a staggering US$136.5 billion, noting that prompt action by donors is "indispensable" to prevent liquidity strains amid the continuing war.

 

On the contentious issue of using Russia's immobilised assets, the IMF reiterated its official stance: any action must "respect international and domestic law and not undermine the functioning of the International Monetary System."

 

This guidance serves as a necessary caution to policymakers exploring options to fund Ukraine's reconstruction.