The managing director of the International Monetary Fund (IMF) has urged the international community to stay realistic about the prospects of an economic recovery.
At the World Economic Forum’s Annual Meeting in Davos and beyond, a sense of cautious optimism over the global economic future is emerging. Inflation appears to be plateauing, and moderate growth, rather than an out-and-out recession, is expected, including by economists participating at Davos.
Speaking at the closing meeting of the Forum’s Annual Meeting, Global Economic Outlook: Is this the End of an Era?, Kristalina Georgieva, Managing Director of the IMF, has urged realism in the face of those predictions, imploring monetary authorities to “stay put.”
‘Stay in the middle of realism’
Georgieva said: “Stay put. My message is it is less bad than we feared a couple of months ago — but less bad doesn’t quite yet mean good. Let me start from what has improved and why we have to be cautious. What has improved is inflation seems to have started leading in the right direction, in other words, down.”
“What has improved is the prospect for China to boost growth.
“We project 2.7 per cent for the world. This may be corrected somewhat in a couple of days… What is positive is that we have seen demonstrably the strength of labour markets translating into consumers spending and keeping the economy up.”
However, she went on to reiterate her plea for caution, making clear that the global economic outlook remains poor.
“Why we should be cautious? Well, first, 2.7 per cent growth, if this is the growth we achieve, by far is not fabulous. This is the third lowest growth rate in the last decades after the global financial crisis and COVID. It’s not great.”
She also warned that a resurgent Chinese economy – dormant for three years during the pandemic — could inflame inflation just as the rest of the world appeared to be getting to grips with it.
“What if the good news of China growing faster translates into oil and gas prices jumping up, putting pressure on inflation?”
“Stay in the middle of realism,” said Georgieva, “that seems to serve the world well.”
And while economies showed signs of recovery, the IMF boss warned that the Ukraine war continued to represent a “tremendous risk” for confidence everywhere, but particularly in Europe. She also emphasized the risk that unemployment could return, adding: “It is very different for a consumer to have cost of living crisis and a job than to have cost of living crisis and no job.”
The danger of fragmentation
She also issued a stark warning on the potential for global fragmentation of trade to slow or even reverse the fragile global economic recovery.
On supply chains, she said, “if we diversify rationally, the cost of this adjustment would be low. We put it down to 0.2 per cent of GDP. If we are like an elephant in a china shop and we trash trade that has been an engine for growth for so many decades, the costs can go up to 7 per cent loss of GDP: $7 trillion.”
She urged authorities to: “Be pragmatic, collaborate, do the right thing. Keep the global economy integrated for the benefit of all of us.”
Source: IMF
