IMF chief urges action as global recession risks rise – Manila Bulletin

WASHINGTON, United States — IMF chief Kristalina Georgieva on Thursday urged global policymakers to take concerted action to avoid a “dangerous ‘new normal'” as risks of a global recession mount. higher by repeated economic shocks.

This file photo taken on December 14, 2020 shows people carrying shopping bags as they walk along a shopping street in Berlin’s Steglitz district. German consumer confidence remains on a record low as Europe’s largest economy faces soaring inflation and an energy crisis as winter approaches, according to a key survey released September 28, 2022. Tobias Schwarz/AFP

In a speech ahead of the fund’s annual meetings next week, the IMF managing director said it was essential to “stabilize the global economy by tackling the most immediate challenges” – including runaway inflation.

Policymakers must act together to “prevent this period of heightened fragility from becoming a dangerous ‘new normal,'” Georgieva said.

But she warned the process would be painful – and acknowledged that if central banks act too aggressively to ease price pressures, it could trigger a “prolonged” economic downturn.

Finance ministers and central bank governors from more than 180 countries will meet next week in Washington for the first all-in-person meeting of the International Monetary Fund and World Bank since 2019, before the Covid-19 pandemic.

The meetings come at a difficult time for the global economy, with the pandemic largely under control, but soaring prices and rising interest rates now threaten to ripple around the world and stifle nascent recoveries.

But the IMF chief said it was too early for major central banks to step back in the battle against inflation which has risen to its highest level in four decades.

Inflation remains “still stubborn, still persistent,” Georgieva told AFP in an interview.

“The risk of not doing enough is greater than the risk of doing too much,” she said. “Clearly they need to do more. They need to stay the course.”

“Shock after shock”

Amid a “darkening global outlook…recession risks are growing,” Georgieva said in her speech, noting that a third of countries are expected to experience at least two quarters of contraction.

And “even when growth is positive, it will look like a recession” due to rising prices eroding incomes.

The crisis lender plans to revise down its 2023 forecast for the global economy, in the report to be released next week for the annual meeting.

In July, the fund cut its growth forecast for this year to 3.2% and for next year to 2.9% – the third straight downgrade.

“In less than three years, we’ve had shock after shock after shock,” Georgieva said in her speech at Georgetown University.

Global supply rumblings were already a challenge as demand surged in the wake of the pandemic slowdown, fueling inflation around the world, and tensions escalated following the Russian invasion of the Ukraine – Georgieva called it a “senseless war” – sending food and fuel prices skyrocketing, which spread to rising costs of other items.

“Far from being transitory, inflation has become more persistent,” and acting before high prices take hold is a major challenge for policymakers, Georgieva said.

Failure to win the battle “will undermine the foundations of growth” because rising prices create a tax on the poor, she told AFP.

But she warned that “the cost of a political misstep can be enormous”.

“Failing to tighten enough would cause inflation to become unanchored and entrenched,” but central banks moving “too much and too fast – and doing so in sync across countries – could push many economies into a prolonged recession,” she said in the speech.

“It’s not easy, and it won’t be painless in the short term,” she warned.

Over-indebtedness

Georgieva stressed the need for fiscal policies to help the most vulnerable segments of society, but warned that efforts must be targeted “with particular emphasis on low-income households”, to avoid going against the grain. monetary policy.

She cautioned against using price controls that are neither affordable nor effective.

The pandemic has forced many countries to take on more borrowing, and now many are already facing or risk becoming over-indebted amid rising interest rates. This “increases the risk of a deepening debt crisis” which could further hurt global growth.

To reduce risk, “big creditors such as China and private sector creditors have a responsibility to act,” she said, calling for “faster and more predictable” action on China’s restructuring. debt.

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