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IMF warns of higher recession risk and darker global outlook

The International Monetary Fund’s (IMF) managing director, Kristalina Georgieva, told the Georgetown University audience on Thursday that the IMF is once again downgrading its projections for global economic growth in 2023, projecting a $4 trillion drop through 2026, citing rising risks of financial instability and recession.

The International Monetary Fund’s managing director, Kristalina Georgieva, told the Georgetown University audience on Thursday that the IMF is once again downgrading its projections for global economic growth in 2023, projecting a $4 trillion drop through 2026, citing rising risks of financial instability and recession.

The Managing Director urged global policymakers to take coordinated action to avoid a dangerous new normal as the risks of a global recession rise due to repeated economic shocks.

In a speech ahead of the IMF‘s annual meeting, Georgieva said that things are likely to get worse before they get better, adding to the Russian invasion of Ukraine that began in February. She said that the war significantly altered the IMF’s economic outlook and the recession risks were increasing. The managing director described the current economic environment as a period of historic fragility.

The director further said that it was crucial to stabilise the global economy by tackling the most immediate challenges, particularly escalating inflation.

According to Georgieva, a new order where any country can be thrown off course more quickly and more often is replacing the previous one, which was characterized by obedience to international regulations, low inflation, and interest rates.

The demand for exports from emerging and developing countries, which are already suffering from high food and energy prices, is being dampened by the fact that all three of the world’s main economies—Europe, China, and the United States—are now slowing down.

IMF

The International Monetary Fund and the World Bank will hold their first fully in-person meetings since 2019, before the COVID-19 outbreak, this week in Washington. More than 180 countries’ finance ministers and central bank governors will attend the meeting.

The International Monetary Fund and the World Bank will hold their first fully in-person meetings since 2019, before the COVID-19 outbreak, this week in Washington. More than 180 countries’ finance ministers and central bank governors will attend the meeting.

The meeting 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 consecutive quarters of economic contraction will occur in the nations that make up roughly one-third of the global economy.

She added that because real incomes are declining and prices are rising, even when growth is positive, it will seem like a recession.

The IMF predicts a $4 trillion decline in global output between now and 2026. That amounts to a huge setback and is nearly the size of the German economy.

The managing director said that we can’t afford for the world to fall apart and if it reaches a point where we cut parts of the world off from each other, it will be the poor in rich countries who will have to bear the brunt of the impact.

She cautioned that there was still a great deal of uncertainty, that additional economic shocks might occur, that high debt levels and liquidity problems might worsen the abrupt and irregular repricing of assets in financial markets, and that other economic shocks were possible.

Even if the economy slowed down, central banks should continue to act forcefully, according to Georgieva, even when inflation remained persistently high.

IMF

She also said in an interview with CNBC that although the U.S. Federal Reserve Chair Jerome Powell was establishing monetary policy on a very, very restricted path, the IMF anticipated interest rates to be somewhere in the 4% zone in 2022 and 2023.

She also said in an interview with CNBC that although the U.S. Federal Reserve Chair Jerome Powell was establishing monetary policy on a very, very restricted path, the IMF anticipated interest rates to be somewhere in the 4% zone in 2022 and 2023.

The managing director said too little tightening would cause inflation to become entrenched and deanchored. However, too much and too fast and doing so in a synchronised manner across countries could push many economies into prolonged recession.

Besides, Georgieva emphasised the importance of fiscal policies to assist society’s most vulnerable segments, but cautioned that efforts must be targeted with a focus on lower-income households to avoid acting against monetary policy’s current. She warned against depending on price controls because they are neither affordable nor effective.

Many countries were forced to borrow more as a result of the pandemic, and many are now facing or are at risk of debt distress as interest rates rise, which increases the risk of a widening debt crisis that could harm global growth further.

To lower the risk, Georgieva said that large creditors like China and private-sector creditors have a responsibility to act, calling for more predictable, faster debt-restructuring action.

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