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The head of the IMF has said the “remarkable resilience” of the global economy this year has cut the chances of a painful recession in the coming quarters, even as she warned of weak growth over the next five years.
Speaking in Cote d’Ivoire ahead of the annual World Bank and IMF meetings in Marrakech, Kristalina Georgieva highlighted “strong momentum” in the US economy, also singling out India as a bright spot.
The odds of a “soft landing” for the global economy had risen as a result, she said.
However, the managing director warned that the economic outlook remains highly fragmented, noting that the US is the only major economy where output has returned to its pre-pandemic path.
Policymakers could not afford to let their guard down, she added, as they battle inflation and lean against financial stability risks.
“The world economy has shown remarkable resilience, and the first half of 2023 has brought some good news, largely because of stronger-than expected demand for services and tangible progress in the fight against inflation,” she said.
Her remarks contrast with the more downbeat tone the IMF struck at the spring meetings in April. Then it warned of a “hard landing” for the global economy, if persistently sticky inflation kept interest rates higher for longer and financial stress worsened.
That view has evolved in the intervening months, with Pierre-Olivier Gournichas, the fund’s top economist, telling the Financial Times in July that the risks of a crash for the global economy were receding.
Undercutting Georgieva’s optimism was grave concern about what she described as a “slow and uneven” recovery since the pandemic, which has led to a “deepening divergence in economic fortunes between and within different country groups”.
Taken together, the IMF reckons total economic output lost globally since 2020 has reached $3.7tn. Economic activity in China is below expectations, she said, while many countries struggle with “anaemic growth”.
Global growth is falling well short of the 3.8 per cent average seen in the two decades that has preceded the pandemic, Georgieva said. Moreover, over the next five years, the outlook has deteriorated further.
“Economic fragmentation threatens to further undermine growth prospects, especially for emerging and developing economies, including right here in Africa.”
The managing director did not deviate from her long-held message that central banks must “avoid a premature easing of policy”, given concerns that inflation has not yet been fully tamed and could well flare up again even after substantial interest rate increases.
“Fighting inflation is the number one priority,” she said, adding that it is likely to remain above target in many countries at least until 2025.
The Fund is due to publish its latest set of forecasts on the global economy’s prospects next week as part of the Morocco meetings, as well as assessments of fiscal and financial stability risks.
The meetings come against the backdrop of bond market turbulence, as a sell-off pushes borrowing costs to their highest level in a decade or more. The IMF chief warned that tighter credit is already putting pressure on sectors including commercial real estate in the US and Europe.
Continued stress in the Chinese property sector is “a cause for concern” she added, as was heavy indebtedness in parts of the non-bank sector.
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