The International Monetary Fund (IMF) chief warned on Wednesday that the global economy’s outlook has “darkened markedly” since April, and she cannot rule out a worldwide recession next year given the high risks.
IMF Managing Director Kristalina Georgieva told Reuters that the organisation would cut its 2022 prediction for global economic growth to 3.6 per cent for the third time this year, adding that IMF experts were still finalising the revised figures.
After lowering its projection by nearly a full percentage point in April, the IMF is likely to offer an updated forecast for 2022 and 2023 in late July. In 2021, the world economy expanded by 6.1 per cent.
“The outlook since our last update in April has darkened significantly,” she told Reuters in an interview, citing a more universal spread of inflation, more substantial interest rate hikes, a slowdown in China’s economic growth, and escalating sanctions related to Russia’s war in Ukraine.
“We are in very choppy waters,” she said. Asked if she could rule out a global recession, she said, “The risk has gone up so we cannot rule it out.”
Recent economic data showed that major large economies, including China and Russia, contracted in the second quarters, she said, adding that the risks will be considerably worse in 2023.
“It’s going to be a tough ’22, but maybe even a tougher 2023,” she said. “Recession risks increased in 2023.”
Investors are growing increasingly concerned about recession concerns, as a major section of the US Treasury yield curve inverted for the second day in a row on Wednesday, indicating that a recession is imminent.
Last month, Federal Reserve Chair Jerome Powell stated that the central bank was not attempting to orchestrate a recession, but was completely committed to getting prices under control even if it meant risking an economic slowdown.
A longer-term tightening of financial conditions, according to Georgieva, would complicate the global economic picture, but she stressed that it was critical to bring rising prices under control.
She said the global outlook was more diverse now than it was two years ago, with energy exporters, like the United States, doing better and importers struggling.
She believes that slower economic growth is a “necessary price to pay” given the urgent and pressing need to restore price stability.
Georgieva underlined an increasing risk of divergence between fiscal and monetary policy, urging countries to carefully balance those steps to avoid fiscal support undercutting central bankers’ attempts to manage inflation.
“We need to create the same strong level of coordination between central banks and finance ministries so they provide support in a very targeted way … and don’t weaken what monetary policies are aiming to achieve,” she said.
(Adapted from TheWire.com)