By Alicia Wallace, CNN Business
The global economic outlook is darkening and the risks of recession are quickly rising: That’s the latest message from the International Monetary Fund, which said Thursday it will once again lower its growth projections.
“We estimate that countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year,” said IMF managing director Kristalina Georgieva during a speech at Georgetown University. “And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices.”
The IMF anticipates that the world could lose $4 trillion in economic output between now and 2026.
“This is the size of the German economy — a massive setback for the world economy,” she said.
After global growth hit a 6.1% annualized rate in October 2021 amid a strong recovery from the pandemic, estimates have since been regularly downgraded by the IMF. The global financial institution now anticipates growth to total 3.2% this year and 2.9% next year.
Those will be lowered again when the IMF releases its latest World Economic Outlook report next week, Georgieva said.
All of the world’s largest economies are slowing, she said, noting the energy crisis in Europe amid Russia’s war in Ukraine, China’s real estate collapse, and historically high inflation in the United States.
Georgieva described the world as being in a period of “historic fragility,” traversing crises including a pandemic, a monthslong war in Ukraine and harsh waves of extreme weather events that have combined to drive a dramatic and devastating surge in prices.
“In less than three years, we lived through shock, after shock, after shock,” the Bulgarian economist said.
She urged policymakers to stay the course on fighting inflation but cautioned that tightening monetary policy too much could hurl the globe into a prolonged recessionary period.
“Not tightening enough would cause inflation to become de-anchored and entrenched — which would require future interest rates to be much higher and more sustained, causing massive harm on growth and massive harm on people,” she said. “On the other hand, tightening monetary policy too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession.”
She also encouraged governments to respond with targeted and temporary fiscal policies to help prop up their most vulnerable citizens while not adding to overall inflation.
That support should also extend to emerging markets and low-income countries at risk of debt distress and starvation, she said.
“It is more likely to get worse than to get better,” she said. “Uncertainty remains extremely high in the context of war and pandemic. There could be even more economic shocks.”
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