The managing director of the International Monetary Fund has warned that the global economy faces years of slow growth, with medium-term prospects the weakest for more than 30 years.
Speaking in Washington ahead of the World Bank and IMF spring meetings next week, Kristalina Georgieva said the world economy will expand at an average annual rate of 3 percent over the next five years.
This figure is well below the average forecast of 3.8 percent over the past two decades and represents the weakest forecast for medium-term growth since 1990.
In the decades since, globalization has helped raise growth rates and lift hundreds of millions of people out of poverty. But with trade protectionism on the rise and large emerging markets such as China now doing well, the pace of global economic expansion is expected to slow.
Highlighting the likely theme of next week’s meetings, the fund’s managing director said the main obstacles to growth are growing economic fragmentation and geopolitical tensions.
Speaking about Russia’s aggression against Ukraine, Georgieva said, “This disaster didn’t just kill innocent people; This exacerbates the cost of living crisis and brings more hunger around the world. This risks destroying the peace dividend we have enjoyed over the past three decades, and adds to frictions in trade and finance.
“The road to stronger growth is rough and misty, and the ropes that bind us together may be weaker now than they were a few years ago,” Georgieva added.
A weaker outlook “will make it even harder to reduce poverty, heal the economic scars of the Covid crisis and provide new and better opportunities for all”.
In the coming quarters, the IMF supports calls from the OECD and other international organizations for central banks to continue with higher interest rates. Georgieva said defeating inflation is a key foundation for better medium-term economic performance.
He said the failure of Silicon Valley Bank and Credit Suisse “exposed specific banks’ risk management failures and oversight deficiencies,” but added that “policymakers have been remarkably swift and comprehensive in their actions in recent weeks.”
Further financial instability should be tackled by central banks providing adequate liquidity to banks facing financial problems, he said. But he acknowledged that if the turmoil worsens, monetary authorities may have to abandon that stance and cut rates.
If this happens, central banks will “face difficult trade-offs between their inflation and financial stability objectives and the use of their respective instruments,” he said.
Georgieva indicated that the IMF’s latest growth forecasts, due out next week, will be little changed from January.
