By Andrea Shalal and David Lawder

WASHINGTON (Reuters)

New forecasts by the International Monetary Fund (IMF) indicate a challenging future for the global economy, characterized by sluggish medium-term growth, escalating trade tensions, and high debt levels, according to IMF Managing Director Kristalina Georgieva.

Georgieva offered a grim outlook in a speech before the upcoming annual IMF and World Bank meetings, yet emphasized that there are still opportunities to enhance growth, decrease debt, and create a more resilient economy.

She warned about persistent high prices that unfairly impact the poor and the escalating Middle East conflict's potential to destabilize regional economies and global commodity markets.

Additionally, Georgieva voiced concerns over increased military spending, which could diminish available funding for other priorities, like aid to developing nations.

Rising protectionism and escalating trade restrictions are fracturing the global economy, hindering trade growth, and "pouring cold water on an already lukewarm world economy," said Georgieva, who recently commenced her second five-year term.

"I'm not super pessimistic because, if you look at the trajectory of the world economy, we can improve, but we can also deteriorate," Georgieva noted during a discussion at IMF headquarters ahead of next week's meetings.

Global trade is no longer the growth engine it once was but "has not gone into reverse," she explained, referring to decades of interdependence, which mitigated the rise in trade restrictions since the COVID pandemic.

There was some positive news, including a decrease in global inflation and a move towards price stability, with orderly cooling of labor markets in the United States and Europe.

The United States is not in a recession, despite Federal Reserve rate cuts that have historically triggered downturns in prior interest-rate cycles; jobless rates are expected to stay relatively low, she indicated.

"Our forecasts show a harsh combination of low growth and high debt—a difficult future," Georgieva warned, referencing mixed economic predictions for key players.

China's growth is slowing while India's is accelerating; the United States is performing "quite well," but Europe could improve, she stated during the IMF event.

Overall growth would be insufficient to eliminate global poverty, create enough jobs, or generate the necessary tax revenue to manage heavy debt and fund investments.

High public debt exacerbates the troubling outlook, with Georgieva indicating that a "severe but plausible" scenario could push debt levels 20 percentage points of GDP beyond current forecasts.

This situation means governments will face tough decisions on spending priorities, particularly in emerging market economies.

To alter this trajectory and stimulate growth, countries must reduce debt, rebuild economic buffers, cut spending, and improve productivity, she advised.

Global cooperation is more crucial than ever, she stressed, citing persistent trade challenges, rapid global warming, and the fast-paced growth of AI technology, which necessitate global regulatory and ethical frameworks.

"I expect that people will leave here somewhat uplifted, somewhat more scared, hopefully motivated to act decisively," she concluded.