WASHINGTON, Oct 6 (Reuters) – The International Monetary Fund will next week lower its forecast for global growth of 2.9% in 2023, Chief Executive Kristalina Georgieva said on Thursday, citing rising risks of recession and financial instability.
Georgieva said the outlook for the global economy was “darkening” and could well get worse amid the shocks caused by the COVID-19 pandemic, Russia’s invasion of Ukraine and climate disasters on every continent.
“We are witnessing a fundamental shift in the global economy, from a world of relative predictability … to one of more fragility — greater uncertainty, greater economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters,” she said in a speech at Georgetown University.
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Georgieva said the old order, characterized by compliance with global rules, low interest rates and low inflation, is giving way to an order in which “any country can be derailed more easily and more frequently.”
She said all of the world’s largest economies — Europe, China and the United States — are now slowing, dampening demand for exports from emerging and developing countries already badly hit by high food and energy prices.
The IMF will lower its 2023 growth forecast from 2.9%, its fourth downward revision this year, when it releases its World Economic Outlook next week, she said. The global lender would leave its current forecast for 3.2% growth in 2022 unchanged, she said, and gave no figure for the new forecast for 2023.
The war in Ukraine and global economic risks will dominate next week’s annual meetings of the IMF and World Bank in Washington, bringing together finance ministers and central bankers from around the world.
The IMF estimates that countries making up about a third of the global economy will experience at least two consecutive quarters of contraction this year or next, Georgieva said.
“And even if growth is positive, it will feel like a recession because of falling real incomes and rising prices,” she said.
Overall, the IMF expects global production to shrink by $4 trillion by 2026. That’s roughly the size of the German economy and amounts to a “massive setback,” she added.
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Georgieva said dividing the global economy into blocs that support, oppose or “sit on the bench” after Russia invaded Ukraine would result in key efficiencies being reduced and the poor being hurt the most.
“We can’t afford to have the world fall apart,” she said. “If we get to a point where we cut off parts of the world, it will be the poor in the rich countries and it will be the poor countries that will bear the brunt of the impact.”
Uncertainty remained high and more economic shocks were possible, she said, warning that high debt levels and liquidity concerns could fuel rapid and disorderly asset repricing in financial markets.
Georgieva said inflation remains stubbornly high but central banks should continue to respond decisively even as the economy slows.
She told CNBC in an interview that Federal Reserve Chair Jerome Powell takes a “very, very narrow” path in setting monetary policy, but the IMF expects interest rates in 2022 and 2023 to be “somewhere in the 4 percent range.” -Area” would lie.
“If it doesn’t tighten enough, inflation can die down. If he tightens too much, there could be a recession. So Jay Powell is doing his best to watch the parameters in the economy to calibrate what he’s doing and I have faith he’s going to make the right call,” she said.
Fiscal measures taken in response to high energy prices should be targeted and temporary, she said in the speech.
“In other words, while monetary policy is hitting the brakes, you shouldn’t have fiscal policy hitting the gas pedal. It would make for a very bumpy and dangerous ride.”
Britain this week rolled back plans to cut taxes on the wealthiest that sparked market turmoil and a scathing rebuke from the IMF, which warned the country’s fiscal plans risked rising inequality and ran counter to monetary tightening.
Asked on CNBC about the IMF’s criticism of UK policies, Georgieva said: “That’s a message we’re all sending.”
Georgieva called for more support for emerging and developing economies, noting that high interest rates in advanced economies and the strong dollar have led to capital outflows. The probability of portfolio outflows had risen to 40%.
She also called on China and private creditors – who hold the lion’s share of global debt – to address the risk of a widening debt crisis in emerging markets.
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Reporting by Andrea Shaal; Additional reporting by David Lawder and Tim Ahmann; Edited by Richard Pullin and Andrea Ricci
Our standards: The Thomson Reuters Trust Principles.
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