In this file photo, International Monetary Fund Managing Director Kristalina Georgieva speaks during a joint press conference on May 18, 2021 at the end of the Summit on the Financing of African Economies in Paris. LUDOVIC MARIN POOL AFP The head of the International Monetary Fund said on Wednesday that the outlook for the global economy had darkened significantly since April and she could not rule out a possible global recession next year due to the elevated risks.
IMF Managing Director Kristalina Georgieva told Reuters that the fund would downgrade its 2022 forecast for 3.6 percent global economic growth for the third time this year, as IMF economists are still finalizing the new numbers.
The forecast for 2022 and 2023 is due to be released in late July, after the International Monetary Fund slashed its forecast by nearly a full percentage point in April. In 2021, the global economy increased by 6.1 percent.
Since our last update in April, the outlook has darkened significantly, she told Reuters in an interview, citing more universal spread of inflation, more substantial interest rate hikes and escalating sanctions related to the conflict in Ukraine.
ALSO READ: US recession fears darken outlook for global growth.
She said we are in very choppy waters. She said that she can't rule out a global recession because the risk has gone up, so we can't rule it out. The risks were even higher in 2023, as recent economic data showed large economies, including those of Russia, had contracted in the second quarters.
It's going to be a tough '22, but maybe even a tougher 2023, she said. The recession risks increased in 2023. A key part of the US Treasury yield curve was inverted for the second consecutive day on Wednesday, a reliable indicator that a recession is coming to an end.
The AFP graphic from June 10, 2022 shows the change in the US consumer price index since 1948.
Federal Reserve Chair Jerome Powell said last month that the US 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 might 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 their actions to avoid any chance of fiscal support undermined 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 to give support in a very targeted way and not weaken what monetary policies are aiming to achieve.