The world faces growing recession risks and a “fundamental shift” away from relative stability to an age of breakdown in international relations and more frequent natural disasters, the head of the International Monetary Fund has warned.
Kristalina Georgieva, the IMF’s managing director, said a succession of economic shocks had unleashed persistently high inflation, prompting a cost of living crisis in countries around the world.
In her curtain-raiser speech before the Washington-based fund’s annual meeting of up to 190 member countries next week, she said dealing with the impact from Covid-19, Russia’s war in Ukraine and climate disasters was being made more difficult by geopolitical fragmentation.
Warning that the IMF would issue downgrades to its growth forecasts for next year, Georgieva said: “We are experiencing a fundamental shift in the global economy.”
The world was moving from a period of “relative predictability – with a rules-based framework for international economic cooperation, low interest rates, and low inflation” into a new age of heightened economic fragility.
This would mean “greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters – a world in which any country can be thrown off course more easily and more often”.
Georgieva said multiple shocks since the onset of the pandemic had changed the economic picture completely, meaning inflation had become more persistent.
With high energy prices weighing on growth, Covid disruptions in China, slowing momentum in the US economy and higher interest rates from big central banks, she said the risks were mounting for economic activity around the world.
The IMF has downgraded its growth projections three times, down to 3.2% for 2022 and 2.9% for 2023. “As you will see in our updated World Economic Outlook next week, we will downgrade growth for next year,” Georgieva said. “And we will flag that the risks of recession are rising.”
As much as $4tn (£3.6tn) in global output is expected to be lost between now and 2026, equivalent to the size of the German economy, in a big setback for the world. The IMF estimates about one-third of countries around the world will experience two consecutive quarters of falling gross domestic product – the technical definition of a recession – this year or next.
“Even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices,” Georgieva said.
