On October 6, the official website of International Monetary Fund (IMF) released the speech "Road forward bravely in a more fragile world" by IMF President Cristalina Georgieva at Georgetown University. Georgieva said in his speech that in view of the increasingly bleak global outlook, urgent actions are needed to stabilize the economy.
In October last year, the IMF predicted that the world would recover strongly from the abyss of the COVID-19 crisis. In 2021, the global economic growth rate reached 6.1%. Most economists, including those of the IMF, believe that the economic recovery will continue and inflation will fade rapidly.
But this is not the case. Since the beginning of this year, the conflict between Russia and Ukraine has been slowing down economic growth.
"IMF has lowered its economic growth forecast three times, with forecast values in 2022 and 2023 being only 3.2% and 2.9%. As you will see in the updated World Economic Outlook next week, we will lower our economic growth forecast for next year," said Georgieva.
Georgieva pointed out that the risk of an economic recession is rising. Countries that account for about one-third of the world's total economic volume will experience economic contraction for at least two consecutive quarters in the two years this year and next. Moreover, even if the economy achieves positive growth, people will feel like they are suffering from an economic recession due to shrinking real income and rising prices.
"Overall, we expect global output losses to reach about $4 trillion from now until 2026. This is equivalent to the size of the entire German economy - it will be a huge setback for the world economy," Georgieva said.
In this case, how should policy makers stabilize the economy? Georgieva said that she would focus on three major priorities: resolutely curb inflation, formulate responsible fiscal policies, and jointly support emerging markets and developing economies.
"If the monetary policy is not tightened enough, it will cause inflation to deank and become deeply rooted. This will require more interest rate hikes in the future and maintain them for a longer time, which will cause huge damage to economic growth and people's well-being. But on the other hand, if monetary policy tightens too much and too fast (and if countries are parallel at the same time), it may cause many economies to fall into a long-term recession." Georgieva explained.
However, Georgieva stressed that even if the economy will inevitably slow down, decisive action is still needed. This is not easy and can also cause pain in the short term. But the key to doing this is to avoid greater and longer lasting pain to everyone.
Currently, emerging markets and developing economies are facing a triple blow to strengthening the dollar, rising borrowing costs and capital outflows. Many countries also need help in dealing with the debt problems pushed up by the new crown epidemic.
"Debt problems are particularly difficult for the developing world. More than a quarter of emerging economies have either defaulted or their bond trading prices have dropped sharply; more than 60% of low-income countries are already in debt difficulties or face huge risks of falling into debt difficulties. This increases the risk of the spread of debt crisis in these countries. To reduce the risk of debt crisis outbreaks, it is the responsibility of large creditors and the private sector to take action. At present, the common framework of the G20 is in place to support low-income countries in debt disposal." Georgieva said.
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