In light of growing risks of a recession and financial instability. The International Monetary Fund will next week revise downward its projection for 2.9% global growth in 2023. According to managing director Kristalina Georgieva.
With the shocks brought on by the COVID-19 epidemic, Russia’s invasion of Ukraine, and climate crises on every continent. Georgieva claimed that the prognosis for the international economy was “darkening” and would even grow worse.
In a speech at Georgetown University, she said, “We are experiencing a fundamental change in the global economic growth, from a world of relative forecasting… to a world with much more fragility – heightened uncertainty, higher economic uncertainty, global political confrontations, and more common and devastating natural disasters.”
A new system is emerging, according to Georgieva. Where “any country can be knocked off course more quickly and more frequently.”
The previous order was characterised by obedience to international laws, low interest rates, and low inflation.
The demand for exports from developing and emerging countries. Which are already suffering from high energy and food prices, is being dampen by the fact.
That all three of the world’s main economies – Europe, China, and the United States – are now slowing down.
When it presents its World Economic Outlook next week. The IMF will decrease its 2023 growth prediction from 2.9%, marking its fourth downward revision this year.
She stated that the global lender would maintain its current projection of 3.2% growth in 2022 and gave no figures for the new 2023 forecast.
IMF Predicted the Recession
Next week’s annual sessions of the World Bank and the IMF in Washington. Which bring up finance ministers with central bankers from all around the world, will be dominated by the conflict in Ukraine and risks to the world economy.
According to Georgieva, the IMF predicts that this year or the following year. At least two quarters of economic contraction will occur in the nations that make up roughly one-third of the global economy.
Additionally, she added, “even when growth is strong, it will still seem like a recession due to declining real earnings and rising prices.
Between now and 2026, the IMF anticipates a $4 trillion decline in global output. That amounts to a “huge setback” and is around the size of the German economy, she continued.
World Divisions
Following Russia’s invasion of Ukraine, Georgieva predicted that the world economy would be split into blocs that supported, opposed, or were “sitting on the bench,” which would affect the poor people the most.
“We cannot allow the planet to disintegrate”, she Says.
“The poor in wealthy countries and the poor countries will face the brunt of the consequences if we get to the point when we cut off different parts of the world between each other.”
She warned that there was still a lot of uncertainty and that other economic shocks were possible, and that high debt levels and liquidity issues might increase the abrupt and erratic repricing of assets on financial markets.
Inflation, according to Georgieva, remained stubbornly high, but central banks should keep acting forcefully even if the economy slowed down.
Although she said in an interview with CNBC that U.S. Federal Reserve Chair Jerome Powell was establishing monetary policy on a “very, very constrained” path, the IMF anticipated interest rates to be “somewhere in the 4% zone” in 2022 and 2023.
“Inflation might de-anchor if he doesn’t restrict enough.”
Economy Metrics
Recession might occur if he tightens policy excessively. Jay Powell is therefore doing his best to monitor economic metrics to calibrate what he does, and I have faith in him to make the right decision “She spoke.
In her speech, she emphasised the need for focused, short-term fiscal actions in response to increasing energy prices.
“To put it another way, fiscal policy shouldn’t be accelerating while monetary policy is applying the breaks. This would result in a very unpleasant and hazardous journey.”
This week, Britain changed its mind about lowering taxes for the wealthiest people.
The move had caused market turbulence and drew a harsh rebuke from the IMF, which had warned that the country’s financial plans ran the risk of escalating inequality and were in conflict with tightening monetary policy.
On CNBC, Georgieva responded when asked about the IMF’s criticism of UK policies, saying.
“This is a message we transmit to everyone.” Georgieva call for further assistance for emerging markets and developing nations, adding that capital outflows had been sparke by high-interest rates in rich economies and the strong dollar. Outflows from portfolios were now 40% likely.
She also urged China and private creditors, who are responsible for the majority of the world’s debt, to deal with the threat of an expanding debt crisis in emerging nations.