Managing Director of the International Monetary Fund (IMF) Kristalina Georgieva attends a session of the annual meeting of the World Economic Forum (WEF) in Davos, January 17, 2023.
Fabrice Coffrini | afp | Getty Images
The outlook for the global economy is not as bad as feared a few months ago – “but less bad is not good,” in keeping with the managing director of the International Monetary Fund.
“We’ve got to be careful,” said Kristalina Georgieva during the closing panel of the World Economic Forum in Davos, moderated by CNBC.
Headline inflation is falling, she said, and China’s reopening is about to spice up global growth, with the IMF forecasting its economy to outpace global growth by 2.7% this 12 months, to 4.4%, after slipping below that level for the first time in 4 a long time last 12 months.
“Also what has modified positively is that now we have clearly seen the strength of labor markets translate into consumer spending and sustaining the economy,” she said.
Nevertheless, she also highlighted ongoing threats, including China’s rise resulting in higher oil and gas prices and a “terrible” war in Ukraine damaging global confidence, especially in Europe.
She added that global growth of 2.7% is still “not improbable”.
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But Georgieva said her biggest caution was that labor markets could lose some of their current tense situation, with rates of interest yet to bite.
“In the event that they bite harder, we could see a rise in unemployment. And for the consumer, it is very different to have a cost of living crisis and have a job than to have a cost of living crisis and not have a job,” she said.
“So now we have to take into consideration the possible rise in unemployment at a time when fiscal space may be very limited in governments, there may be little they will do to assist people. Yet they’d be forced to accomplish that.”
Addressing the head of the European Central Bank, Christine Lagarde, who was speaking in the same panel, she said: “All power is in your hands. If fiscal policy runs counter to the purpose of monetary policy, you may should tighten much more.”
“Stay in the middle of realism”
Her message to business and policy makers was “be careful not to fall on the other side of the spectrum from being too pessimistic to being too optimistic. Stay in the middle of a realism that seems to serve the world well.”
She then called on Davos attendees to fight global economic fragmentation.
“If we have a look at medium-term growth prospects, how we cope with supply chain security will be of great importance to our future growth prospects,” she said.
She said if diversifying supply chains to strengthen them was done “rationally” and collectively, it could cost 0.2% of GDP.
This might rise to a 7% loss of GDP, equal to $7 trillion, “if we’re like an elephant in a china shop and destroy the trade that has driven growth for therefore many a long time,” she said.
“So whether we will raise optimism depends upon the people in this room. Be pragmatic, work together, do the right thing, keep the global economy integrated for the profit of all of us,” added Georgieva.