The outlook for the global economy has “darkened considerably” in recent months, the IMF chief warned, and the world faces a growing risk of recession over the next 12 months.
The commodity price shock caused by the war in Ukraine has exacerbated the cost of living crisis for hundreds of millions of people, Kristalina Georgieva said on Wednesday, and it is “only getting worse”.
Inflation was also higher than expected, she said in a blog post published the same day as the latest figures showing prices in the United States rose to a 40-year high of 9.1 % in June.
Economists and investors now believe the US Federal Reserve could raise interest rates by a historic 1% when its board of directors meets in two weeks.
The Bank of Canada shocked markets on Wednesday by raising its benchmark rate by one percentage point, while the Reserve Bank of New Zealand raised its benchmark rate by 0.5% this week, as did the Bank of Korea. . Singapore’s central bank also tightened monetary policy on Thursday.
Along with another expected hike from the Fed, this continues to put pressure on other central banks to follow suit to bring inflation under control.
As supply bottlenecks and repeated Covid lockdowns in China also hamper the uneven recovery from the global pandemic, Georgieva said G20 finance ministers and central bankers meeting in Bali “face global economic outlook which has darkened considerably”.
“The outlook remains extremely uncertain. Think of how a further disruption in Europe’s natural gas supply could plunge many economies into recession and trigger a global energy crisis,” she wrote. “This is just one of the factors that could make an already difficult situation worse.
“2022 will be a tough year – and possibly an even tougher 2023, with an increased risk of recession.”
The IMF would revise down its global growth forecasts for 2022 and 2023 later this month, she said, after warning in April that its forecast of 3.6% was likely to be revised down. decrease.
The European Commission was due to cut its euro zone GDP forecast for 2023 to 1.4% from 2.3% on Thursday, according to Bloomberg, citing a leaked draft from the EU executive in Brussels. Inflation in the single currency area is expected to average 7.6% this year before falling to 4% next year, according to the document.
The European Central Bank is under pressure to raise interest rates to fight inflation and protect the euro, which this week fell to parity with the US dollar for the first time in two decades.
Georgieva said raising rates to fight inflation was one of three key policies needed to tackle the threat to the global economy, while reducing public debt and strengthening global cooperation.
But raising rates is a high-risk strategy for many countries amid growing concerns in the UK, for example, that the Bank of England’s aggressive rate hikes will push the country into recession.
EU countries also face the same dilemma at a time when they face a potentially crippling energy crisis this winter if, as expected, Russia cuts natural gas supplies due to the bloc’s opposition to the Kremlin’s war against Ukraine.