IMF warns it will cut its forecasts and a third of the world economy will fall into recession

The Bulgarian economist stated that although the IMF has cut its growth forecasts by up to three times, it is only planning for 3.2% for 2022 and 2.9% for 2023 next week. Reduce growth again for next year.

Likewise, the Fund’s new projections increased risks recession.

“We estimate that countries that represent about a third of the world economy will experience at least two consecutive quarters of contraction this year or next.” decline in real income and price increase will cause a feeling of being in stagnation.

In this way, IMF estimates put the global production loss at around $4 trillion (4 trillion euros) by 2026, a figure equivalent to the size of the German economy, meaning “a major setback for the world economy”.

“And it’s more likely to get worse than better”He warned Georgieva that uncertainty in the context of war and pandemic was extremely high, but ignored the possibility of further economic shocks as risks to financial stability escalated.

In this regard, he noted: rapid and erratic correction of asset value can be strengthened by pre-existing vulnerabilitiesincluding high sovereign debt and liquidity concerns in key financial market segments.

“We are experiencing a fundamental shift in the global economy: from a relatively predictable world with international economic cooperation, low interest rates and low inflation, to a more fragile world with more uncertainty, more economic volatility, geopolitical conflicts and more severe weather disasters. a world in which any country can get lost more easily and more often,” he summed up.

set route

In this way, for the IMF director urgent to stabilize economy in the face of worsening expectationsHe first points out the need to tame high inflation, although he warns that tightening monetary policy too much and too quickly, and doing it synchronously across all countries, could push many economies into a prolonged recession.

“Inflation remained stubbornly high and rampantThis means that central banks must continue to respond,” said Georgieva, adding that “the right thing to do” in the current environment is to act decisively even when the economy inevitably slows down.

“This is not easy and will not prevent short-term suffering. But the key is to prevent much greater and longer-lasting suffering for everyone,” he added.

fiscal policy

On the other hand, a second urgent priority for Bulgarians is to implement a responsible fiscal policy that protects the vulnerable without “increasing inflation”.

In this way, he recommended that governments implement not only temporary but also specific fiscal measures, with a clear focus on low-income households.

In this sense, where high energy prices persist, governments have chosen to provide direct assistance to low- and middle-income families, thus minimizing the use of price control measures as these tools are neither affordable nor effective for long periods of time.

“It is essential to avoid indiscriminate financial support, because if done comprehensively, increasing demand will make it more difficult to fight inflation,” he explained, because while monetary policy is pressing the brakes, fiscal policy should not be stepped on. gas pedal. “This would be a very difficult and dangerous journey,” he remarked.

Georgieva also called for a “triple hit” from a stronger dollar, joint efforts to support emerging and developing economies, which are facing higher borrowing costs and capital outflows.

reforms

In any case, the IMF director, eThese immediate actions are very important.however, it requires insufficient and transformative reforms to stimulate the global economy and build resilience.

In this context, he noted that countries can use medium-term fiscal frameworks to make their finances more sustainable and create more budget space to invest in more productive people and economies, including health, education and stronger safety nets.

Similarly, digital infrastructure can drive innovation and more transparent and efficient digital public services.

“If we are to move forward in this time of historical fragility, we must weave a new economic and social fabric that is stronger and more resilient to the tensions facing the world today.”