The impact of fiscal tightening on employment “is yet to come,” but central banks “haven’t finished their work” in the face of inflation, International Monetary Fund (IMF) Managing Director Kristalina Georgieva estimated Thursday during a meeting with the press.
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While the economic slowdown in 2023 is expected to be more severe than forecast by the Fund in its latest releases last October, national labor markets have so far shown “resilience”, stressed Ms Georgieva, “which is a positive point”.
“As long as people have jobs, they will consume even if prices are high, which helped the economy in the third quarter, particularly in the United States and Europe, but we know the tightening impact will come” in relation to the Unemployment, the head of the IMF insisted.
Especially since the situation will not improve due to “persistent inflation” and in view of which “the work of the central banks is not over yet”, reminded Ms. Georgieva, at the same time hinting that “the crisis is probably not over yet”.
With the risk of social tensions if the impact on employment proves to be particularly significant, the IMF’s executive director warned.
“We are only on January 12 and already have Brazil, Peru, Bolivia, Colombia, the UK, all for different reasons but with very clear social tensions.”
Kristalina Georgieva therefore underlined the need to prevent the financial tightening, which must ultimately translate into an increase in unemployment, from causing additional tensions in social relations.
At the same time, the effects of the rise in interest rates will also be dramatic for indebted countries, reminded Ms. Georgieva, whose institution has been warning for several months about the risk that around sixty emerging and developing countries will plunge into a sovereign debt crisis.
Nevertheless, the IMF assumes that “a global recession can be avoided”, even if a certain number of countries recorded a decline in their GDP, at least “if there is no additional shock”, reminded the director-general.
Especially if China doesn’t question its change of tack on the pandemic, when a country’s economic recovery from mid-year “could be the key global growth driver for 2023,” Ms. Georgieva added.