The IMF is downgrading its global economic growth forecast, the IMF’s Managing Director Kristalina Georgieva announced in a speech to students in Washington, DC’s Georgetown University campus (Thursday, Oct. 6).
“We always come around the annual meetings with our World Economic Outlook that we are further downgrading our growth projections for next year. And we will be flagging that the risks of recession are rising. Our estimate is that one third of countries around the world. This is the one third share of the world economy would experience, at least, two consecutive quarters of contraction this year and next year. And even in countries where growth is positive for hundreds of millions of people, it would feel like recession because inflation is eating into real incomes,” said Georgieva.
Last October, the IMF projected a strong recovery from the depths of the Covid crisis. Global growth reached 6.1 percent in 2021. It was thought that the recovery would continue as the world emerged from pandemic. However multiple shocks, among them persistent and rising inflation and the war in Ukraine, changed the economic picture completely.
“Overall, we expect global output as a result of all this to shrink between now and 26, 2026 by $4 trillion. To give you a sense, what is $4 trillion? This is the size of the German economy gone,” warned the Bulgarian in a speech meant to unveil the key themes facing world economic leaders ahead of the IMF and World Bank Annual Meetings next week.
She urged policy makers to stay the course by tightening interest rates to bring down inflation.
“Not tightening enough would cost inflation to become de-anchored and entrenched so with us for a long time. And that would require interest rates to tighten even more to bring it down and that would cause tremendous harm on people, but also on prospects for growth. On the other hand, if we tighten too much too fast and do so in synchronized manner. We can push many economies into prolonged recession. So far, we see a relatively good shift. Tightening is leading to taking somewhat the heat out of domestic demand, including in the housing markets. Of course, not good if you are on the market right now, but it means that we are slowing down the risk for the economy. But we are not there yet. Central banks have to continue to respond. In the current environment, as painful that may be, this is the right thing to do. Even if the economy slows down as a result. Not easy. Not without pain, but less pain if we take a now a look into the future. Do the right thing now,” added Georgieva.
Georgieva concluded her speech by urging countries to act together to address the deeper causes of the world’s fragility, including uniting for change ahead of COP 27.
“Food security. Breaks my heart that we are going backwards on hunger. Hunger is the world's greatest solvable problem. But instead of solving it, we are marching backwards. Today, 345 million people are acutely insecure. What does acutely mean? That desperate mothers and fathers cannot feed their children. So, the work has to unite around addressing food security. We at the IMF just created a new food shock window in our emergency financing so we can provide help to countries. We have identified $9 billion in balance of payment needs, and we want to be part of the solution to countries that face this problem. Another obvious area where we need each other is climate change. It is an existential threat to humanity. We can survive inflation. We can survive recession. We cannot survive unmitigated climate crisis. We simply cannot,” said Georgieva.
To watch the full speech, click here.