The International Monetary Fund (IMF) is warning of a broad-based and sharper than expected slowdown in global economic activity, with inflation higher than seen in several decades.
What is more, IMF Managing Director Kristalina Georgieva has warned that these and other risks were pushing countries to the brink of a recession, resulting in higher levels of food insecurity and instability to financial markets.
She said those issues, coupled with the climate crisis and high debt levels must be tackled urgently and through partnerships.
“We have to do it, not only with a sense of urgency acting now, we have to do it acting together,” said Georgieva, who gave the assurance that the IMF was working closely with its member states to address the issues.
Speaking during the opening press conference at the IMF/World Bank Group annual meetings in Washington on Thursday, the IMF chief said the fund estimates that about 25 per cent of the world’s economy would experience two consecutive quarters of negative growth next year.
“Across many economies, recession risks are rising, and even when growth remains positive for hundreds of millions of people it would feel like recession because of rising prices and shrinking incomes. On top of it, risks to financial stability are also growing,” she declared.
“Uncertainty remains exceptionally high. The world economic outlook shows a one-in-four chance, or 25 per cent chance, that global growth could drop to a historic low of two per cent next year,” she said.
Georgieva said she believed monetary policy tools can help to tame inflation even in the midst of the ongoing war in Ukraine.
“I am convinced that if we do not restore price stability we will undermine prospects for growth. We would create more uncertainty for investors and we would put consumers in a very difficult spot,” she said..
The just released IMF World Economic Outlook – Countering the Cost of Living Crisis – noted that “The cost of living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook.”
Global growth is forecast to slow from 6.0 per cent in 2021 to 3.2 per cent in 2022 and 2.7 per cent in 2023, according to the document.
The Washington-based institution said “Global inflation is forecast to rise from 4.7 per cent in 2021 to 8.8 per cent in 2022 but decline to 6.5 per cent in 2023 and to 4.1 per cent by 2024.”
It further warned that monetary policy should stay the course to restore price stability, and aligned fiscal policy should aim to alleviate the cost of living pressures.
“Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation,” it added.
She warned: “The price of policy misstep, the price of poor policy, poor communication of policy intentions is very high.” She appealed to policymakers to “act with a sense of urgency”, and act together.
“We see very clear areas where we can do better, even in this more complex environment,” she added.
The economist said countries should take decisive measures to put a lid on inflation while communicating clearly. She also pointed to the importance of “responsible fiscal policies”.
“We must prioritise protecting the vulnerable – the vulnerable households, the vulnerable businesses that are so important for the economy to function – but we have to do that with fiscal buffers exhausted because of the pandemic and levels of debt being very high. So the obvious conclusion is that policy measures need to be well targeted and they need to be temporary,” she said.
She urged countries to stay clear of “across-the-board fiscal support”, noting that this was neither effective nor affordable.
“If we are to help people and fight inflation, we must ensure that fiscal and monetary policy go hand-in-hand. . . when monetary policy puts a foot on the brakes, fiscal policy should not step on the accelerator, because if it does, we are in for a very dangerous ride,” she stressed.
In relation to food insecurity, the IMF chief said stronger efforts were needed to address this issue, as she noted that an estimated 345 million people were acutely food insecure and at risk of dying from hunger.
She said the IMF has identified some 48 countries that are severely impacted by food insecurity, most of which are in sub-saharan Africa.
She also called for “transformational reforms” to address climate change and to make digitalisation work for people while addressing inequality. (MM)
