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“With geopolitical tensions rising and inflation still high, a robust recovery remains elusive,” Kristalina Georgieva, managing director of the International Monetary Fund, said in a recent speech in Washington. That comes on top of recent pressures on the banking sector that have caused global inflation to fighting much more complex, he added.
Ahead of the IMF’s World Economic Outlook release this week, Georgieva called for global growth to stay around 3% for the next five years, marking the weakest medium-term growth projection since 1990 and well below the average of 3.8% of the last two decades.
Growth below 3% this year is generally consistent with the 2.9% estimate in January and the 2.7% estimate in October.
Advanced economies are expected to weigh the most on global growth, particularly in the US and Europe, where rising borrowing costs have hampered demand. The IMF expects around 90% of advanced economies to see a decline in their growth rate by 2023. By contrast, emerging economies are a “bright spot”, with India and China together expected to account for 50%. of world growth this year.
Referring to Russia’s invasion of Ukraine, an inflationary development, Georgieva said that “this calamity not only kills innocent people, but also worsens the cost of living crisis and creates more hunger around the world. It risks ending the peace dividend we have enjoyed for the last three decades, which also adds to the frictions in trade and finance.”
The IMF chief took note of central banks’ fight against inflation in the wake of global banking problems, imploring “central banks to stay the course” in cutting inflation as long as financial pressures remain limited. Last month was one for the books as three regional US lenders – Silicon Valley Bank (OTC: SIVBQ), Signature Bank (OTC: SBNY) and Silvergate Capital (SI) – went bust in just one week and then worried Swiss lender Credit Suisse (CS) was forced into a government-brokered takeover to avoid further industry turmoil.
While Georgieva hinted that central banks should maintain tight monetary policy until price stability is achieved, she also urged them to “address financial stability risks when they arise through the adequate provision of liquidity. The key is to carefully monitor risks in banks and non-bank financial institutions”. institutions, as well as weaknesses in sectors such as commercial real estate”.
However, if the turmoil in the banking system worsens, he acknowledged that central banks may have to cut interest rates. On Thursday, JPMorgan Chase (JPM) Chairman and CEO Jamie Dimon told CNN in an interview that banking tensions have increased the odds of a US recession, a scenario that money markets appeared to be protecting. in the last weeks.
“Concerns remain about vulnerabilities that may be hidden, not only in banks but also in non-banks – now is not the time for complacency,” Georgieva added.
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