IMF to lower global outlook as recession risks rise

International Monetary Fund Managing Director Kristalina Georgieva speaks on the global economic outlook. Photo / AP

The head of the International Monetary Fund, Kristalina Georgieva, painted a dark picture of the global economy.

The head of International Monetary Fund warned Thursday that recession risks across the globe are rising as a toxic mix of inflation, higher borrowing costs and lingering supply chain disruptions continue to batter the global economy.

Kristalina Georgieva, the IMF's managing director, said that as a result of these persistent problems, the international body would downgrade its growth projections for next year in an upcoming report, one that she said would paint a dark picture of the looming economic threats. The assessment is the latest example of how last year's optimism for a strong global recovery has been replaced by worries about rapid inflation, Russia's war in Ukraine and an ongoing pandemic.

"Multiple shocks, among them a senseless war, changed the economic picture completely," Georgieva said in remarks prepared for a speech at Georgetown University. "Far from being transitory, inflation has become more persistent."

The IMF has been steadily downgrading its forecasts in recent months and currently projects global output to grow 2.9 per cent next year. That projection will be lowered when the fund releases its closely watched World Economic Outlook report Tuesday as the annual meetings of the IMF and World Bank begin in Washington.

Policymakers who will be attending the meetings will be working to better coordinate their responses to inflation pressures and recession risks while preparing for the repercussions of higher interest rates.

"For major economies facing high inflation, the immediate task is to return to an environment of stable prices," Treasury Secretary Janet Yellen said in a speech at the Center for Global Development on Thursday. "But it is important to recognize that macroeconomic tightening in advanced countries can have international spillovers."

Yellen added that the IMF and multilateral development banks need to be ready to assist developing economies if debt crises emerge and suggested that many emerging markets will require "considerable debt relief."

The IMF now estimates that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction in 2022 or 2023.

"Even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices," Georgieva said.

In her speech, Georgieva painted a grim portrait of the world's economic predicament. She noted that Europe is feeling the pain of a reduction of Russian gas supplies, China's property market is facing a deepening downturn, and the US economy is losing momentum as inflation and rising interest rates spook consumers and stall investment.

Emerging markets and developing economies are even more poorly positioned to confront higher food and energy prices, particularly as demand for their exports dwindle.

Last year's hopes that vaccines and supply chain fixes would keep the economy humming have been overtaken by worries about new economic shocks and financial stability risks.

"Overall, we expect a global output loss of about US$4 trillion between now and 2026. This is the size of the German economy — a massive setback for the world economy," Georgieva said.

She added, "And it is more likely to get worse than to get better."

This article originally appeared in The New York Times.

Written by: Alan Rappeport
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