The Managing Director of the International Monetary Fund, Kristalina Georgieva, said on Thursday that global growth will expand by less than 3% this year, ahead of the meetings of the International Monetary Fund and the World Bank next week.
“With rising geopolitical tensions and inflation still high, a strong recovery remains a long way off,” Georgieva He said In a speech in Washington.
The International Monetary Fund expects global growth to remain at around 3% for the next five years – the lowest medium-term growth forecast since 1990 and well below the average of 3.8% for the past two decades.
The International Monetary Fund will release more details on its growth outlook when it releases its latest World Economic Outlook next week. The forecast for growth of less than 3% this year would be in line with the January estimate of 2.9% – which was 0.2% higher than the previous forecast in October.
Georgieva said emerging economies in 2023 are the bright spot — with India and China expected to account for half of global growth. The International Monetary Fund sees economies in the United States and Europe slowing as higher interest rates affect demand. Georgieva said about 90% of advanced economies are expected to experience a decline in their growth rate this year.
The managing director also focused on beating inflation amid global banking issues in the wake of the failure of Silicon Valley Bank in the US and the collapse of Credit Suisse, which led to a hasty takeover by UBS. As long as financial pressures are contained, Georgieva said, central banks should “stay the course,” which implies continued hikes in interest rates to bring down inflation.
But at the same time, she said, central banks “must address financial stability risks as they arise by providing appropriate liquidity. The key is to closely monitor risks in banks and non-bank financial institutions, as well as vulnerabilities in sectors such as trading and real estate.”
She added: “There are still concerns about vulnerabilities that may be hiding, not only in banks but also in non-banks – now is not the time for complacency.”
Georgieva said that bank failures amid high interest rates and low liquidity revealed failures in risk management in certain banks, as well as supervisory loopholes.
Georgieva has also called for international cooperation to boost global trade, pointing to IMF research showing that the long-term cost of trade fragmentation can reach 7% of global GDP – roughly equal to the combined annual output of Germany and Japan.
“If the technological decoupling is added, some countries could see losses of up to 12% of GDP,” she said. “The fragmentation of capital flows, including foreign direct investment, would be another blow to global growth prospects.”
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