The IMF’s Managing Director has warned that the global economy faces years of slow growth and the medium-term outlook is the weakest in more than 30 years.
Speaking in Washington ahead of the World Bank-IMF Spring Meetings next week, Kristalina Georgieva said the global economy will grow at a compound annual rate of about 3 percent over the next five years.
The number is well below the average 3.8 percent forecast over the past two decades and marks the weakest forecast for medium-term growth since 1990.
In the decades since, globalization has helped boost growth rates and lift hundreds of millions out of poverty. However, as trade protectionism mounts and major emerging economies like China are now doing better, the pace of global economic expansion is expected to slow.
The fund’s chief executive highlighted a likely theme for next week’s meetings, saying the main obstacles to growth are increasing economic fragmentation and geopolitical tensions.
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Speaking of Russia’s invasion of Ukraine, Georgieva said: “This disaster not only kills innocent people; it is also exacerbating the cost of living crisis and bringing more hunger around the world. There is a risk that the peace dividends we have enjoyed over the past three decades will be wiped out, also contributing to trade and financial tensions.
“The road back to robust growth is bumpy and foggy, and the ropes holding us together may be weaker now than they were a few years ago,” Georgieva added.
The weaker outlook would “make it even harder to reduce poverty, heal the economic scars of the Covid crisis and create new and better opportunities for all.”
For the coming quarters, the IMF supports the demands of the OECD and other international organizations that the central banks remain on course with high interest rates. Georgieva said fighting inflation is an important basis for better medium-term economic performance.
The failures of Silicon Valley Bank and Credit Suisse “exposed risk management failures at certain banks, as well as regulatory failures,” she said, but added that “policymakers have been remarkably quick and comprehensive in their actions over the past few weeks.”
Further financial instability should be managed by central banks offering ample liquidity to banks facing funding difficulties, she said. But if the turmoil worsened, she acknowledged that monetary authorities might have to abandon this stance and cut interest rates.
Should that happen, central banks would face “difficult trade-offs between their inflation and financial stability targets and the use of their respective tools,” she said.
Georgieva pointed out that the latest IMF growth forecasts, to be released next week, would change little from January’s.
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