The IMF warns of a higher risk of recession and a darker global outlook

WASHINGTON — Two leading economists painted very different pictures Thursday of what the world economy will look like in years to come.

Kristalina Georgieva, managing director of the International Monetary Fund, told an audience at Georgetown University on Thursday that the IMF is once again lowering its projections for global economic growth in 2023, projecting $4 trillion lower global economic growth through 2026. .

“Things are more likely to get worse before they get better,” he said, adding that the Russian invasion of Ukraine that began in February dramatically changed the IMF’s outlook on the economy. “Recession risks are rising,” he said, calling the current economic environment a “period of historic fragility.”

Meanwhile, US Treasury Secretary Janet Yellen, across town at the Center for Global Development, focused on how the US and its allies could help make longer-term investments. in the global economy.

He called for ambitious political solutions and did not use the word “recession” even once. But despite Yellen’s more measured view, he said “the global economy faces significant uncertainty.”

The war in Ukraine has pushed up global food and energy prices, in some places exponentially, and Russia, a key global supplier of energy and fertilizer, has dramatically escalated the conflict and exposed global supply vulnerabilities. of food and energy.

Furthermore, the ongoing COVID-19 pandemic, rising inflation and worsening weather conditions are also affecting global economies and exacerbating other crises, such as high debt levels in low-income countries.

Georgieva said the IMF estimates that countries that make up a third of the world economy will experience at least two consecutive quarters of economic contraction this or next year, adding that the institution has already lowered its global growth projections three times. Now he expects 3.2% for 2022 and now 2.9% for 2023.

The IMF’s grim projections come as central banks around the world raise interest rates in hopes of reining in rising inflation. The US Federal Reserve has been the most aggressive in using interest rate hikes as a tool to cool inflation, and central banks from Asia to England have started raising rates this week.

Georgieva said that “tightening monetary policy too much and too quickly, and doing it in a synchronized way across countries, could push many economies into a prolonged recession.” Maurice Obstfeld, an economist at the University of California, Berkeley, recently wrote that excessive tightening by the Federal Reserve could “push the world economy into an unnecessarily harsh contraction.”

Yellen agreed Thursday that “macroeconomic tightening in advanced countries may have international spillovers.”

The speeches by the two economists come ahead of next week’s annual meetings of the 190-country IMF and its sister lending agency, the World Bank, which are intended to address the multitude of risks to the global economy.

Georgieva said the fund’s updated World Economic Outlook, to be released next week, downgrades growth figures for next year.

Many countries are already seeing major impacts from Ukraine’s invasion on their economies, and the IMF’s bleak projections are in line with other forecasts of slower growth.

The Organization for Economic Co-operation and Development said last week that the world economy will lose $2.8 trillion in output in 2023 due to the war.

The projections come after the OPEC+ alliance of oil-exporting countries decided on Wednesday to slash production to support falling oil prices in a move that could deal another blow to the struggling world economy and push up prices politically. sensitive for American drivers just before key national elections. in November.

Yellen said that with many developing countries facing all challenges simultaneously, from debt to hunger to exploding costs, “this is not the time for us to back down.”

“We need ambition to update our vision of financing and executing development. And we need ambition to meet our global challenges,” he said.

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