The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, did not mince words during a recent speech at Georgetown University.
Saddled with war, the lingering COVID-19 pandemic, and the potential for a severe energy crunch this winter, the global economy faces a period of “historic fragility,” according to the Bulgarian-born economist.
The IMF official urged central banks worldwide to consider slowing down the pace of interest rate hikes.
“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people. On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession,” she claimed.
During her speech, Georgieva told the audience that the IMF predicts “that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year.”
The IMF estimates the global economy could lose $4 trillion in economic output over the next three years. To put that number in perspective, it’s roughly equivalent to the entire German economy, the fourth-largest in the world.
The global economy grew at 6.1% annually in October 2021, driven by optimism in a post-pandemic environment. Since then, the IMF has been steadily downgrading growth estimates, anticipating 3.2% growth for 2022 and a more modest 2.9% next year.
The confluence of major events impacting the global economy is of particular concern for the IMF.
Russia’s invasion of Ukraine has persisted longer than many pundits initially predicted, driving substantial disruption to the energy and agriculture sectors, as previously reported in The Dallas Express.
China continues to wrestle with a shaky real estate market, the fallout of which the world is patiently monitoring. If that were not enough, inflation remains near record highs, with aggressive interest rate action likely to continue from the world’s central banks.
The next few months could be critical for the global economy. If fighting in Ukraine subsides and inflation begins to soften, prospects for 2023 could improve markedly. If war persists and central bank action is less effective at taming inflation than expected, global economic prospects could deteriorate further.
