The IMF on Thursday hinted that it would nudge its global growth forecasts slightly higher, while warning that the world economy still risks a “tepid 20s” this decade if inflation and debt challenges are not addressed.
Global growth will be “marginally stronger” in the IMF’s new predictions, to be published on Tuesday next week, IMF Managing Director Kristalina Georgieva said in a prepared speech in Washington.
The most recent outlook, from January, envisaged an expansion of 3.1 percent this year and 3.2 percent next year.
Photo: Reuters
Robust consumption and investment, as well as easing supply-chain problems, are among the drivers of strong growth in the US and many emerging-market economies, she said.
However, inflation was not yet fully defeated and debt levels in most countries are too high, she added.
“Without a course correction, we are indeed heading for ‘the tepid 20s’ — a sluggish and disappointing decade,” she said, adding that the fund’s medium-term outlook for global growth remains “well below its historical average” at just above 3 percent.
She also called on global central banks, including the US Federal Reserve, to avoid premature or delayed monetary easing, which risks triggering new inflation surprises or pouring cold water on economic activity.
“The Fed is acting prudently,” she said in an interview with Atlantic Council president Fred Kempe following the speech, which she gave at the think tank.
The administration of US President Joe Biden would likely “look at what can be done so that the economy doesn’t overheat to a point that is not healthy,” she said, while warning that a strong dollar for a long time risks causing financial stability worries for other nations.
Georgieva, who is poised to win a second five-year term as head of the IMF, spoke ahead of its spring meetings held jointly with the World Bank in Washington next week.
Fresh off a trip to China at the end of last month, Georgieva said that the nation’s leadership is aware that it must chart a new course for its economy by being more decisive with failing companies in its property sector, boosting domestic demand and following through on reforms of state-owned enterprises and resolving local government debt challenges.
All of that is important beyond China’s borders, given the impact on other countries in Asia and the rest of the world.
“China making good choices would be good for everybody,” she said.
She also highlighted an increase in industrial policy actions worldwide last year, citing an analysis that shows more than 2,500 interventions. China, the EU and the US account for almost half of the total, she said.
“There is a need for caution” in such measures, Georgieva said, but added that there is a case for industrial policy to help address market failures, like encouraging innovations that tackle climate change.
Trade tensions have risen in the past few months as the US and Europe criticize China for adopting what they call unfair policies to promote industries including electric vehicles, arguing that the result is overcapacity that distorts global prices.
China has pushed back, saying the current output of green industries is far from meeting demand and vowing to rely on markets to remove overcapacity where it exists.
The IMF chief also warned that there is a growing divergence within and across country groups, with the US economy rebounding strongly while Europe has a more gradual recovery.
Low-income countries suffered the most severe scarring effect from the COVID-19 pandemic, and fragile and conflict-affected economies are bearing the heaviest burden, she said.
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