Pierre-Olivier Gourinchas, Chief Economist at the IMF, in Washington, April 18, 2022. JASON ANDREW FOR THE WORLD
Pierre-Olivier Gourinchas, chief economist at the International Monetary Fund (IMF) since February and until then economics professor at the University of California at Berkeley, expects lower global growth and higher inflation than expected in 2022. With the war in Ukraine and the exit restrictions in China, uncertainties are high because of Covid-19. The French economist also proposes regulating the use of financial sanctions at international level and advocates a new system for restructuring public debt.
Is the war in Ukraine threatening the global economic recovery?
Despite a downward revision of our forecasts by 0.8 points, global growth should reach 3.6% in 2022. This is a fairly robust number and higher than the 3.5% annual rate recorded on average between 2011 and 2019. In contrast, inflation, which includes energy and food prices, is growing faster than expected, at 5.7% in developed markets and 8.7% in emerging markets, which is relatively high. Watch out for the clouds gathering on the horizon.
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Risks identified include a possible escalation of the conflict between Russia and Ukraine. If Europe is no longer supplied with Russian gas and oil, this will not be without consequences for its economy. Then the Covid-19 did not go away and led to restrictions in China. Third, inflation remains a major threat to the global economy and if central banks become more aggressive, particularly in the United States but also in Europe, this will weigh on growth.
Finally, increases in food and energy prices can create difficulties for large numbers of households in poor countries, with the risk of stoking social and political tensions.
Should risks of financial instability be ruled out?
In the past, when central banks in the major developed economies raised interest rates, investing there became more attractive and capital left emerging markets, weakening them. This return of capital exacerbates budgetary or financing difficulties in a number of countries. The situation can get out of control with the devaluation of the exchange rate and higher inflation for a certain number of imported goods.
It can still happen even if countries are better at managing this instability. They have better foreign exchange reserves and more robust policies. The tightening of monetary policy in the US, in the euro zone and in the UK has not destabilized markets as in the past. These work quite well, the exchange rates have not collapsed, there has been no panic, but the situation remains fragile.
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