The International Monetary Fund’s (IMF) managing director has warned that the global economy is facing years of slow growth, with medium-term prospects their weakest in more than 30 years.
Speaking in Washington in advance of the World Bank and IMF spring meetings next week, Kristalina Georgieva said the world economy would expand at an average annual rate of about 3 per cent over the next five years.
The figure is well below the average 3.8 per cent forecast of the past two decades and marks the weakest projection for medium-term growth since 1990.
In the decades since then, globalisation has helped raise growth rates and pull hundreds of millions of people out of poverty. But with trade protectionism on the rise and large emerging markets such as China now better off, the pace of global economic expansion is expected to slow.
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Highlighting a likely theme of the meetings next week, the fund’s managing director said key impediments to growth were increasing economic fragmentation and geopolitical tensions.
Speaking of Russia’s invasion of Ukraine, Ms Georgieva said, “This calamity not only kills innocent people; it also worsens the cost-of-living crisis and brings more hunger around the world. It risks wiping out the peace dividend we have enjoyed for the past three decades, adding also to frictions in trade and finance.
“The path back to robust growth is rough and foggy, and the ropes that hold us together may be weaker now than they were just a few years ago,” Ms Georgieva added.
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The weaker outlook would make “it even harder to reduce poverty, heal the economic scars of the Covid crisis and provide new and better opportunities for all”.
For the coming quarters, the IMF backs calls from the OECD and other international organisations for central banks to stay the course with high interest rates. Ms Georgieva said defeating inflation was a vital foundation of better medium-term economic performance.
The failure of Silicon Valley Bank and Credit Suisse “exposed risk management failures at specific banks, as well as supervisory lapses”, she said but added that “policymakers have been remarkably swift and comprehensive in their actions in recent weeks”.
Further financial instability should be dealt with by central banks offering ample liquidity to banks facing funding difficulties, she said. But if turmoil worsened, she acknowledged that the monetary authorities might have to ditch that stance and cut rates.
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Were this to happen, central banks would face “difficult trade-offs between their inflation and financial stability objectives, and the use of their respective tools”, she said.
Ms Georgieva indicated that the IMF’s latest growth forecasts, published next week, would be little changed from those in January. – Copyright The Financial Times Limited 2023
