The outlook for the global economy has darkened significantly since April, and she could not rule out a possible global recession next year, given the elevated risks, said the head of the International Monetary Fund IMF on Wednesday.
IMF Managing Director Kristalina Georgieva told Reuters the fund would downgrade its forecast for 3.6% global economic growth in the coming weeks for the third time this year, and that economists are still working on the new numbers.
The IMF is expected to release its updated forecast for 2022 and 2023 in late July, after slamming its forecast by nearly a full percentage point in April. In 2021, the global economy increased by 6.1%.
She said we are in very choppy waters. She said she could not rule out a global recession because the risk has gone up, so we can't rule it out. She said that the risks of China and Russia were even higher in the second quarters, and that some large economies, including those of Russia and China, had contracted in the second quarters.
She said it's going to be a tough '22, but maybe even a tougher 2023. The recession risks increased in 2023. A key part of the U.S. Treasury yield curve was inverted for a second straight day on Wednesday, which has been a reliable indicator that a recession is imminent.
Federal Reserve Chair Jerome Powell said last month that the central bank was not trying to engineer a recession, but was fully committed to bringing prices under control even if doing so risked an economic downturn.
Georgieva said a longer-lasting tightening of financial conditions would complicate the global outlook, but added it was crucial to get surging prices under control.
The global outlook was more heterogeneous now than just two years ago, with energy exporters, including the United States, on a better footing, while importers were struggling, she said.
She said that slower economic growth may be a necessary price to pay because of the urgent need to restore price stability.
Georgieva cited a growing risk of divergence between fiscal and monetary policies and urged countries to carefully calibrate those actions to avoid any chance of fiscal support undermined by central bankers' efforts to control inflation.
She said that we need to create the same strong level of coordination between central banks and finance ministries so that they can provide support in a very targeted way and not weaken what monetary policies are aiming to achieve.