IMF chief Christine Lagarde said that the “remarkable” resilience of the global economic system this year had reduced the likelihood of a painful contraction in the quarters to come, but she also warned about weak growth for the next five-year period.
Kristalina Georgeeva, speaking in Cote d’Ivoire, ahead of the annual World Bank/IMF meetings in Marrakech highlighted the “strong momentum” within the US economy. She also singled out India as a bright area.
She said that the odds of a global “soft landing” had increased as a result.
The managing director, however, warned that the outlook for the economy remains fragmented. He noted that the US was the only major country where output had returned to pre-pandemic levels.
She added that policymakers cannot afford to relax their guard as they fight inflation and face financial stability threats.
She said, “The world’s economy has demonstrated remarkable resilience and the first half 2023 brought some good news – largely due to stronger than expected demand for service and tangible progress made in the fight against the inflation.”
Her comments contrast with the IMF’s more depressing tone at its spring meetings in April. The then warned that a “hard-landing” could occur for the global economic system if inflation remained sticky and interest rates stayed high for longer, while financial stress increased.
In the interim, this view has changed. Pierre-Olivier Gournichas , the fund’s leading economist, told that in July, the risks of an economic crash were receding.
Georgieva’s optimism was undermined by her grave concern over what she called a “slow and uneven” recovery since the pandemic. This has led to an “increasing divergence” in economic fortunes within and between different country groups.
IMF estimates that the total global economic output has been lost since 2020 at $3.7tn. She said that economic activity in China was below expectations while many other countries are struggling with “anaemic” growth.
Georgieva stated that the global growth rate is far below the average of 3,8% seen in the 20 years preceding the pandemic. The outlook for the next five-year period has also deteriorated.
“Economic fragmentation threatens further to undermine growth prospects for emerging and developing countries, including here in Africa.”
The managing director didn’t stray from her message, which she has been delivering for years: central banks should “avoid an premature easing of policies”, as inflation is still not fully under control and could flare up again despite substantial interest rate hikes.
She said that the fight against inflation was her top priority, and added that it would likely remain above target for many countries until at least 2025.
Next week, the Fund will publish its latest forecasts of global economic prospects as part of Morocco’s meetings. It will also assess fiscal and financial stability risk.
The meetings take place against a backdrop of turbulence on the bond markets, with a sell-off pushing borrowing costs to levels not seen in at least a decade. IMF chief warns that credit tightening is already placing pressure on certain sectors, including commercial real estate. This includes the US and Europe.
She added that the continued stress in the Chinese real estate sector was “a cause of concern”, as well as the heavy debt in some parts of the nonbank sector.