Global economy to lose $4trillion says IMF chief

The IMF chief also said the outlook is “more likely to get worse than to get better” in an increasingly gloomy situation for the global economy.

Kristalina Georgieva was speaking at an IMF event in Washington, USA, on Thursday and you can see the full speech below.

$4tn loss says IMF

The forecast loss would be a massive setback to the world economy, said Georgieva.

“Overall, we expect a global output loss of about $4tn between now and 2026. This is the size of the German economy”.

“Financial stability risks are growing: rapid and disorderly repricing of assets could be amplified by pre-existing vulnerabilities, including high sovereign debt and concerns over liquidity in key segments of the financial market.”

Uncertainty ‘extremely high’

The uncertainty brought about by Russia’s invasion of Ukraine and the hugely damaging pandemic remained “extremely high” while also warning that “more economic shocks” could not be ruled out.

The downbeat forecast comes ahead of the IMF’s annual meetings next week when it will meet with central banks and prominent finance ministers from World governments to discuss ongoing inflation and debt faced by emerging nations.

Also on the agenda will be shared global challenges of climate change and food security.

Fundamental shift in global economy

“We are experiencing a fundamental shift in the global economy,” said Georgieva.

“From a world of relative predictability—with a rules-based framework for international economic cooperation, low-interest rates, and low inflation, to a world with more fragility—greater uncertainty, higher economic volatility, geopolitical confrontations, and more frequent and devastating natural disasters—a world in which any country can be thrown off course more easily and more often.

The IMF currently projects global economic growth of just 3.2 percent in 2022 and 2.9 percent in 2023. Georgieva said the latter estimate will be lowered next week.

Bringing down inflation

Georgieva called on policymakers to “stay the course” to bring down inflation as a means of stabilising economies.

“As painful as that may be this is the right thing to do. Even if the economy slows down as a result,” she said.

She also warned that the cost of a policy misstep will be high.

“Not tightening enough would cause inflation to become deanchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” she said.

“On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”

The strength of the dollar and high borrowing costs, along with capital outflows, would likely cause turmoil to emerging markets and developing economies, the prepared IMF statement said. “Maintaining exchange rate flexibility will help. But countries would also benefit from a more proactive approach and from taking precautionary steps before a crisis emerges,” said Georgieva.

The darkening outlook follows a much more optimistic forecast this time last year.

In October of last year the IMF was projecting a strong recovery as much of the world looked to emerge from the depths of the Covid pandemic.

This did not happen and growth forecasts first set at 6.1per cent have been repeatedly revised.

“High energy and food prices, tighter financial conditions and lingering supply constraints decelerated growth,” said Georgieva.

All of the world’s largest economies are slowing down—the Euro Area is severely impacted by the reduction of gas supplies from Russia; China suffers from pandemic-related disruptions and a deepening downturn in its property market; and momentum is slowing in the United States as inflation reduces disposable income and consumer demand, and higher interest rates are a drag on investment.”

This week it was reported the IMF is to establish a regional office in Saudi Arabia.