International Monetary Fund (IMF) managing director Kristalina Georgieva turns to Athena, the goddess of wisdom, skills and warfare in Greek Mythology, to help the world tide over three shocks – Covid-19, Ukraine war and climate disaster in all continents – darkening the global outlook.
"These shocks have inflicted immeasurable harm on people's lives. Their combined impact is driving a global surge in prices, especially on food and energy, causing a cost-of-living crisis," she told an audience at the Georgetown University in Washington DC as IMF annual meetings 2022 curtain raiser on Thursday.
Emphasising the urgency to stabilise the economy, given the darkening global outlook, the IMF top executive said the world must act together to revitalise global cooperation and transform the global economy to build resilience against future shocks.
In October last year, the IMF projected that a strong recovery from the Covid crisis would put global growth at 6.1% in 2021 on the hope that the recovery would continue and inflation would quickly subside with supply side disruptions ending and production rebounding.
But this has not happened as multiple shocks, among them a senseless war, changed the economic picture completely. "Far from being transitory, inflation has become more persistent," Kristalina noted.
She described how high energy and food prices, tighter financial conditions and lingering supply constraints decelerated growth in all of the world's largest economies – the Euro area is severely impacted by gas supply cut by Russia, China from pandemic-related disruptions and the United States losing momentum as inflation reduces disposable income and consumer demand, and higher interest rates are a drag on investment.
"This in turn affects emerging and developing countries as they face reduced demand for their exports; and many feel severe strains from high food and high energy prices," she said, giving the background for global lender's downward revision of growth projections several times.
The IMF already downgraded its growth projections for the global economy three times to only 3.2% for 2022 and 2.9% for 2023.
"And as you will see in our updated World Economic Outlook next week, we will downgrade growth for next year. And we will flag that the risks of recession are rising," she said in her scripted speech "Navigating A More Fragile World."
The Washington-based lender estimates that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year. And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices.
"Overall, we expect a global output loss of about $4 trillion between now and 2026. This is the size of the German economy," the IMF managing director said, warning that worse to come as uncertainty over the war remains extremely high and financial stability risks are growing.
She identifies a stronger dollar, high borrowing costs and capital outflows as a triple blow to many emerging markets and developing economies, raising the probability of portfolio outflows over the next three quarters to 40%. "That could pose a major challenge to countries with large external financing needs," she points out.
To stabilise the economy, she sets three priorities: to stay the course to bring down inflation, to put in place responsible fiscal policy and to make joint efforts to support emerging markets and developing economies.
As inflation remains stubbornly high and broad-based, the IMF top official finds the central banks' intervention the "right thing to do" in the current environment even if the economy inevitably slows to avoid much greater and longer-lasting pain for everybody.
At the end, the Bulgarian economist serving the IMF again resorts to Athena, also known as the patroness of weaving. "If we are to navigate our way through this period of historic fragility, we must weave a new economic and social fabric that is stronger and more resilient to the stresses our world faces today," says Kristalina, calling upon those who have voice and resources to help the world's poor out of the difficult times.