Double digit growth this year, says IMF

The International Monetary Fund (IMF) is predicting major growth of 11.2 per cent for the Barbados economy this year and 4.9 per cent in 2023, even as it downgrades its global growth forecast. At the same time, the fund is predicting that with the most vulnerable globally facing added pressures from rising prices, countries could be faced with social instability and food insecurity.

This healthy growth rate, which is in line with double-digit projections by the Barbados Central Bank at the start of the year, comes against the backdrop of a surge in consumer prices and other elevated risks as a result of the COVID-19 pandemic and war in Ukraine.

Pierre-Olivier Gourinchas, Economic Counsellor and Director of Research at the IMF, presented the latest World Economic Outlook report on Tuesday, noting that the Russia-Ukraine war will contribute to a significant slowdown in global economic growth this year.

The IMF is predicting global growth of 3.6 per cent for this year and next year, down from the 4.4 per cent for this year and 3.8 per cent for 2023, which it predicted back in January.

Gourinchas said the revised projection reflects the direct impact of the war in Ukraine and sanctions on Russia, with both countries projected to experience “steep contractions”.

The IMF is estimating economic growth to reach an average of 2.5 per cent for Latin America and the Caribbean this year and next year.

Without singling out any country or region, Gourinchas stressed that as vulnerable households continued to experience increased pressures as a result of rising prices, this could lead to social instability and food insecurity.

He said the IMF continued to recommend “urgent and coordinated action on the food crisis together with the World Bank, the World Food Programme and other international organisations”.

Gourinchas also noted that the IMF stood ready to provide assistance, as he insisted that countries put “carefully calibrated and temporary” fiscal and monetary measures in place to help provide an ease to their population.

“We are really urging the international community to do all it can to provide funding to provide food supplies to vulnerable populations around the world. In terms of our own policy advice, we are also urging countries to implement fiscal policy that will support vulnerable populations. In some countries it could take the form of disbursing payments through existing social programmes. In other countries where the infrastructure is not necessarily there, it might have to happen through food or energy subsidies,” he said.

“These would have to be carefully calibrated and temporary to make sure that they don’t create another problem which is exhausting fiscal space and fiscal resources. For some countries it will also mean the need for some external financial assistance, and the fund stands ready to consider requests for financial assistance either on an emergency basis or in the context of existing programmes or in coordination with other agencies and international organisations,” he suggested.

The Russia-Ukraine war, coupled with the continued effects of the COVID-19 pandemic, rising inflation and expected bottlenecks in supply chain as a result of the new lockdowns in China, should also result in a continued rise in inflation globally, said Gourinchas.

In the case of oil and other commodity importers such as Barbados, the IMF official cautioned that a surge in prices could spell trouble, with the war adding to a series of supply chain shocks that will spread “far and wide”.

“Russia is a major supplier of oil, gas and metal and together with Ukraine, of wheat and corn. Reduced supplies of these commodities have driven their prices up sharply. Commodity importers in Europe, the Caucuses and Central Asia, the Middle East and North Africa and Sub-Saharan Africa are most affected,” he said.

“But the surge in food and fuel prices will hurt lower income households globally including in the Americas and the rest of Asia,” he pointed out.

According to the World Economic Outlook, consumer prices could increase to around six per cent for Barbados this year, up from the estimated three per cent at the end of 2021.

“We project inflation will remain elevated for much longer”, Gourinchas said while noting that rising global inflation could prompt more aggressive responses from policymakers.

“Furthermore, increases in food and fuel prices may also significantly increase the prospect of social unrest in poorer countries,” he added.

He also called for countries to continue to pay attention to addressing climate issues and for equitable global access to the full complement of COVID-19 tools including monitoring, tests, vaccines and treatments, to contain the virus and to address other global health priorities.

“Multi-lateral cooperation remains essential to advance these goals. Policymakers should also ensure that the global financial safety net operates effectively. For some countries, this means securing adequate liquidity support to tide over short-term refinancing difficulties, but for others, comprehensive sovereign debt restructuring will be required,” said Gourinchas.

The Barbados Central Bank is scheduled to give an economic review and outlook on the Barbados economy next week. marlonmadden@barbadostoday.bb