Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), participates in a roundtable discussion to discuss the global economy during the New Global Financial Compact Summit at the Palais Brongniart in Paris, France, June 22, 2023. Ludovic Marin/Pool via REUTERS/file Photo Acquire license rights
Oct 5 (Reuters) – Rising demand for services and progress in reducing inflation have increased the chances that the global economy can escape recession, but fiscal and financial risks are numerous, a declared Thursday the head of the IMF, Kristalina Georgieva.
Georgieva, opening the way for the annual meetings of the International Monetary Fund and the World Bank next week, said successive shocks since 2020 had slashed global output by $3.7 trillion, with current growth remaining well below targets. pre-pandemic levels and that medium-term growth prospects had weakened. further away.
Stubborn inflation means interest rates are likely to stay “higher for longer” and economic fragmentation threatens to hit emerging and developing economies harder, she said.
In remarks prepared for a speech in Abidjan, Ivory Coast, Georgieva said the IMF’s new World Economic Outlook, released on Tuesday, would show a slow and uneven recovery, with stark differences in trends across the world.
“The global economy has demonstrated remarkable resilience, and the first half of 2023 brought good news, driven largely by stronger-than-expected demand for services and tangible progress in combating inflation ” Georgieva said in her prepared speech. “This increases the chances of a soft landing for the global economy. But we cannot let our guard down.”
Georgieva said the current pace of growth was “quite weak”, well below the pre-pandemic average of 3.8%, and that inflation was likely to remain above target in some countries until 2025.
“Fighting inflation is the No. 1 priority,” Georgieva said, stressing that high prices undermine consumer and investor confidence and hit the poorest people in society hardest.
“To win the fight against inflation, interest rates need to stay high for longer,” she said. “It is essential to avoid premature easing of policy, given the risk of a resurgence of inflation.”
Georgieva said expectations of a “soft landing” had helped push up prices of various assets, but a rapid resurgence of inflation could lead to a sharp tightening of financial conditions.
The IMF chief’s grim message comes days before finance ministers and central bankers from 190 countries gather in Marrakech for a week of meetings on the risks facing the global economy.
The meetings are the first on the African continent since those held in Nairobi, Kenya, in 1973, and they will take place not far from the epicenter of a devastating earthquake in Morocco that killed 2,900 people.
Georgieva highlighted stark differences in growth dynamics, noting that the United States is the only major economy to have seen output return to pre-pandemic levels, and citing India and Ivory Coast as d other positive points.
But most advanced economies are slowing and economic activity in China, the world’s second-largest economy, remains below expectations, she said, while many other countries struggle with “anemic growth.”
Economic fragmentation – marked by protectionism, export controls and a retreat from global trade – threatens to further undermine growth prospects, particularly for emerging and developing economies, she said.
Many countries also faced significant fiscal risks and urgently needed to replenish their reserves, with Africa and other regions facing a further increase in debt burdens.
She said banks were also facing pressure and called for urgent action to strengthen the global financial safety net. The IMF analysis showed that 100 emerging and low-income countries – including most African countries – lacked sufficient resources and access to swap lines, leaving them exposed in the event of a financial crisis, a- she declared.
The IMF, which has provided about $320 billion in financing to 96 countries since the pandemic, also needed to strengthen its lending capacity, Georgieva said, urging member countries to act to increase its quota resources.
She also called on the fund’s strongest members to step up by further funding the Poverty Reduction and Growth Fund, which serves the poorest members, as well as its new $40 billion Resilience and Sustainability Fund. of dollars, which provides longer-term financing for climate reforms.
Reporting by Andrea Shalal; Editing by Andrea Ricci
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