Kristalina Georgieva discusses the global economy and policy priorities in Washington on Thursday. Agence France-Presse
The International Monetary Fund is once again lowering its projections for global economic growth in 2023, projecting world economic growth lower by $4 trillion through 2026.
Kristalina Georgieva, managing director of the IMF, told an audience at Georgetown University on Thursday that “things are more likely to get worse before it gets better,” saying the Russian invasion of Ukraine that began in February has dramatically changed the IMF’s outlook on the economy.
Many countries are already seeing major impacts of the war on their economies.
Georgieva said the institution downgraded its global growth projections already three times. It now expects 3.2% for 2022 and now 2.9% for 2023.
“The risks of recession are rising,” she said, adding that the IMF estimates that countries making up one-third of the world economy will see at least two consecutive quarters of economic contraction this or next year.
Policymakers need to act together to “prevent this period of heightened fragility from becoming a dangerous ‘new normal,’” Georgieva said.
But she warned the process will be painful -- and that if central banks move too aggressively to tamp down price pressures, it could trigger a “prolonged” economic downturn.
Finance ministers and central bank governors from more than 180 nations will gather next week in Washington for the first fully in-person meeting of the International Monetary Fund and World bank since 2019, prior to the Covid-19 pandemic.
Faced with the “darkening global outlook ... the risks of recession are rising,” Georgieva said -- announcing that the crisis lender plans to once again downgrade its 2023 forecast for the world economy, in the forecasts due to be published next week for the annual meeting.
One-third of countries are expected to see at least two quarters of contraction, and “even when growth is positive, it will feel like a recession” because of rising prices eroding incomes, she said.
The fund in July slashed its growth forecast for this year to 3.2 percent, and for next year to 2.9 percent -- the third consecutive downgrade.
The meetings come at a difficult time for the global economy, with the pandemic largely under control, but soaring inflation and rising interest rates now threatening to reverberate around the globe and choke off nascent recoveries.
“In less than three years we lived through shock, after shock, after shock,” Georgieva said in her speech at Georgetown University.
Global supply snarls already were a challenge as demand surged following the pandemic slowdown, fueling inflation worldwide, and strains worsened in the wake of the Russian invasion of Ukraine -- which Georgieva called a “senseless war” -- sending food and food prices soaring.
“Far from being transitory, inflation has become more persistent,” and acting before high prices become entrenched is a key challenge for policymakers, Georgieva said -- warning that “the cost of a policy misstep can be enormous.”
“Not tightening enough would cause inflation to become deanchored and entrenched,” but moving “too much and too fast -- and doing so in a synchronized manner across countries -- could push many economies into prolonged recession,” she said.
Despite the risks, central banks need to continue “act decisively.”
“This is not easy, and it will not be without pain in the near term,” she cautioned. “But the key is to avoid much greater and longer-lasting pain for everyone later on.”
Georgieva stressed the need for fiscal policies to help the most vulnerable segments of society, but warned that efforts must be targeted “with a laser-sharp focus on lower-income households,” to avoid acting against the current of monetary policy.
She cautioned against relying on price controls which are not affordable nor effective.
The pandemic forced many countries to take on more borrowing, and now many are already facing or at risk of debt distress amid rising interest rates. That “raises the risk of a widening debt crisis” which could further harm global growth.
To reduce the risk “large creditors such as China and private-sector creditors have a responsibility to act,” she said, calling for “faster and more predictable” action on debt restructuring.
The International Monetary Fund (IMF) has lowered its forecast for Oman’s GDP growth to 4.3% in 2022, although higher oil prices, fiscal consolidation measures and progress on structural reforms are supporting a post-pandemic economic recovery.
This compares with the IMF’s 4.5% estimate in June.
“Uncertainties continue to cloud the outlook, with downside risks, notably from global sources, dominating in the short run,” the IMF said in a statement after a mission to Oman.
Oman, one of the Gulf’s weaker economies, swung to a budget surplus in the first half of 2022, easing pressure on public finances and improving its ability to meet debt obligations.
The IMF expects Oman to post fiscal and external surpluses in 2022 and over the medium term, due mainly to higher oil revenue, fiscal discipline and the introduction of value added tax. Central government debt is expected to fall to 44% of GDP in 2022 from 62.9% last year, it added.