Officials from the Group of 20 major economies must take urgent action to combat inflation and address the risks from food insecurity and high debt amid an increasingly challenging global backdrop, said Kristalina Georgieva, managing director of the International Monetary Fund.
The global economic outlook has darkened significantly and uncertainty is exceptionally high, Ms Georgieva told the G20 meeting in Indonesia on Saturday.
Downside risks about which the IMF had previously warned have now materialised, she said.
“The war in Ukraine has intensified, exerting added pressures on commodity and food prices. Global financial conditions are tightening more than previously anticipated,” Ms Georgieva said.
“Continuing pandemic-related disruptions and renewed bottlenecks in global supply chains are weighing on economic activity.”
The rising risk of a recession, broad-based inflation and subsequent interest rate increases are weighing on the economic recovery that will force the IMF to downgrade its global economic growth projections again for this year and the next, Ms Georgieva said in a blog post on Wednesday.
Recent economic indicators imply a “weak second quarter and we will be projecting a further downgrade” to both 2022 and 2023 global growth in the World Economic Outlook Update, which will be released later this month, she added.
In April, the fund lowered its growth forecast for the global economy to 3.6 per cent in 2022 and 2023, revising it down 0.8 and 0.2 percentage points from its January forecast, respectively.
If inflation is more persistent, it will require even stronger policy interventions, which could potentially impact growth and exacerbate spillovers, particularly to emerging and developing countries, the IMF chief said.
“Emerging and developing countries have been experiencing sustained capital outflows for four months in a row,” Ms Georgieva said.
“They now suffer the risk of reversing three decades of catching up with advanced economies and instead falling further behind.”
Countries must do everything in their power to bring inflation down. Failure to do so could risk the recovery and further damage living standards for vulnerable people, she said.
“The good news is that central banks are stepping up. Monetary policy is increasingly synchronised: more than three-quarters of central banks have raised interest rates and have done so 3.8 times,” the IMF chief said.
Fiscal policy must help central bank efforts to tame inflation, Ms Georgieva said. It needs to reduce debt, while providing targeted measures to support vulnerable households facing renewed shocks, especially from high energy or food prices.
“A fresh impetus for global co-operation will be critical to confront the multiple crises the world is facing,” she said.
The IMF called on the international community to step up and work together to support those in immediate need, remove export restrictions, promote food production, and invest in climate-resilient agriculture.
Ms Georgieva also requested global leaders to tackle the scourge of high debt, “which has reached multi-year highs”.
“More than 30 per cent of emerging and developing countries are at or near debt distress. For low-income countries, that number is 60 per cent,” she said.
However, she cited climate change as “the most pressing crisis of all”.
Scaling up financial resources for the climate transition as well as clear policy signals from national governments to decarbonise their economies are critical, Ms Georgieva said.
As energy prices abate, countries have an opportunity to accelerate carbon pricing or equivalent measures, she said.
