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 many years.
What’s more, IMF Managing Director Kristalina Georgieva has warned that these and other risks were pushing countries to the brink of a recession, leading to higher levels of food insecurity and instability to financial markets.
She said those issues, coupled with the climate crisis and high debt levels have to be tackled urgently and thru partnerships.
“We’ve to do it, not only with a way of urgency acting now, we have now to do it acting together,” said Georgieva, who gave the peace of mind that the IMF was working closely with its member states to deal with the problems.
Speaking through the opening press conference on 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 yr.
“Across many economies, recession risks are rising, and even when growth stays positive for a whole lot of hundreds of thousands of individuals it might feel like recession due to rising prices and shrinking incomes. On top of it, risks to financial stability are also growing,” she declared.
“Uncertainty stays exceptionally high. The world economic outlook shows a one-in-four likelihood, or 25 per cent likelihood, that global growth could drop to a historic low of two per cent next yr,” she said.
Georgieva said she believed monetary policy tools can assist to tame inflation even within the midst of the continuing war in Ukraine.
“I’m convinced that if we don’t restore price stability we’ll undermine prospects for growth. We’d create more uncertainty for investors and we might put consumers in a really difficult spot,” she said..
The just released IMF World Economic Outlook – Countering the Cost of Living Crisis – noted that “The associated fee 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 three.2 per cent in 2022 and a couple of.7 per cent in 2023, in line with the document.
The Washington-based institution said “Global inflation is forecast to rise from 4.7 per cent in 2021 to eight.8 per cent in 2022 but decline to six.5 per cent in 2023 and to 4.1 per cent by 2024.”
It further warned that monetary policy should stay the course to revive price stability, and aligned fiscal policy should aim to alleviate the associated fee of living pressures.
“Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is crucial for fast-tracking the green energy transition and stopping fragmentation,” it added.
She warned: “The value of policy misstep, the worth of poor policy, poor communication of policy intentions could be very high.” She appealed to policymakers to “act with a way of urgency”, and act together.
“We see very clear areas where we are able to do higher, even on this more complex environment,” she added.
The economist said countries should take decisive measures to place 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 which are so necessary for the economy to operate – but we have now to try this with fiscal buffers exhausted due to pandemic and levels of debt being very high. So the apparent conclusion is that policy measures have to be well targeted they usually have to be temporary,” she said.
She urged countries to remain clear of “across-the-board fiscal support”, noting that this was neither effective nor reasonably priced.
“If we’re to assist people and fight inflation, we must make sure that fiscal and monetary policy go hand-in-hand. . . when monetary policy puts a foot on the brakes, fiscal policy shouldn’t step on the accelerator, because if it does, we’re in for a really dangerous ride,” she stressed.
In relation to food insecurity, the IMF chief said stronger efforts were needed to deal with this issue, as she noted that an estimated 345 million people were acutely food insecure and susceptible to dying from hunger.
She said the IMF has identified some 48 countries which are severely impacted by food insecurity, most of that are in sub-saharan Africa.
She also called for “transformational reforms” to deal with climate change and to make digitalisation work for people while addressing inequality. (MM)