Policymakers are achieving the art of the impossible, IMF chief says

By Maria Martinez

WASHINGTON (Reuters) -Praising what she described as "impossible" policy shifts in Germany, Britain and Argentina, International Monetary Fund Managing Director Kristalina Georgieva said on Thursday the global economy is entering a "new era."

"What I have seen this week is really a whole collection of the impossible becoming possible," she told a panel on the sidelines of the IMF and World Bank spring meetings in Washington.

Germany's fiscal expansion will have "very important, positive spillovers" on the rest of Europe, Georgieva said.

Germany's parliament approved in March plans for a massive spending surge, throwing off decades of fiscal conservatism in hopes of reviving growth and scaling up military spending.

"By injecting fiscal capacity in Germany, given that the European economy is quite integrated, that helps the rest of Europe," Georgieva said.

Addressing German Finance Minister Joerg Kukies, the IMF chief said, "You are very modest, you wouldn't say (it), but I can tell you that there are cheers in Europe because of your decision."

Georgieva also praised the British government's plans to revive the country's slow-moving economy, its regulatory changes to boost investment and innovation and its push for closer trade ties with the European Union.

"With your permission, Chancellor, I'm going to say this: when the divorcees, the EU and the UK, are dating again, we are in a great place," Georgieva said, addressing British finance minister Rachel Reeves.

Referring to Argentina's first budget surplus in 14 years, Federico Sturzenegger, the country's minister of deregulation and state transformation, acknowledged that many observers had doubted it could be achieved.

Argentina's President Javier Milei slashed spending after taking office in late 2023 in a bid to tame rampant inflation, which hit an annual peak of nearly 300% last April.

Although the trade war initiated by U.S. President Donald Trump has rattled nerves, Georgieva sees no reason to panic. She described the global economy as a glass of water that was "most likely full, not empty," putting the risk of a recession at 30%.

Kristin Forbes, an economics professor at the Massachusetts Institute of Technology, employed a movie metaphor to describe the situation.

"Right now, it feels like the start of a Mission Impossible movie where the challenges are huge, so you don't see a way out," Forbes said. "Once we have some more certainty on the new trading regime, I think we will be able to adapt and recover."

(Reporting by Maria Martinez; Editing by Andrea Ricci and Paul Simao)