The Managing Director of the International Monetary Fund, Kristalina Georgieva, said on Thursday that global growth is expected to increase by less than 3% this year ahead of next week’s IMF/World Bank meetings.
“With geopolitical tensions mounting and inflation still high, a robust recovery remains elusive,” Georgieva said in a speech in Washington.
The IMF forecasts global growth of around 3% for the next five years –– the lowest medium-term growth forecast since 1990 and well below the average of 3.8% over the past two decades.
The IMF will provide more details on its growth prospects when it releases its latest World Economic Outlook next week. An outlook of less than 3% growth this year would be in line with the January estimate of 2.9% – which was 0.2% higher than previously forecast in October.
Georgieva said emerging markets are the bright spot for 2023 – with India and China expected to account for half of global growth. The IMF sees the economy slowing in the US and Europe, where higher interest rates are weighing on demand. About 90% of advanced economies are expected to see their growth rate slow this year, Georgieva said.
Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), attends a news conference after a meeting at the German Chancellery in Berlin, Germany, November 29, 2022. Portal/Michele Tantussi
The managing director also pointed to managing inflation amid global banking woes following the failure of the US’s Silicon Valley Bank and the collapse of Credit Suisse, prompting a hastily arranged takeover by UBS. Georgieva said as long as financial pressures are contained, central banks should “stay the course”, implying further rate hikes to bring down inflation.
At the same time, she said central banks “should address financial stability risks when they arise through adequate liquidity provision. The key is to carefully monitor risks at banks and non-bank financial institutions, as well as weaknesses in sectors such as retail and real estate.”
She added: “Concerns about hidden vulnerabilities remain, not only among banks but also among non-banks – now is not the time for complacency.”
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Georgieva said bank failures amid higher interest rates and weak liquidity had exposed risk management failures at certain banks, as well as regulatory failures.
Georgieva also called for international cooperation to boost global trade, citing IMF research showing that the long-term cost of trade fragmentation could be as much as 7% of global GDP – roughly equivalent to the combined annual output of Germany and Japan.
“If technological decoupling is added, some countries could see losses of up to 12% of GDP,” she said. “And the fragmentation of capital flows, including foreign direct investment, would further hamper prospects for global growth.”