Inflation has battered the global economy and the world risks a recession next year just as it tries to recover from the Covid-19 pandemic and the war in Ukraine drags on, IMF head Kristalina Georgieva said on Thursday.
“We estimate that two thirds of the world economy will experience two or more consecutive quarters of negative growth,” Ms Georgieva said during a media briefing at the annual International Monetary Fund meeting in Washington.
“The risk of global recession is now 25 per cent.”
Ms Georgieva also warned of the pressure of rising prices, the same day as the US Labour Department released data showing the core consumer price index for September rose by more than forecast to a 40-year high of 6.6 per cent. That means the Fed will almost certainly keep raising interest rates aggressively.
The IMF is endorsing a strong focus on price pressures because the risk of higher inflation expectations becoming de-anchored has become more visible, Ms Georgieva said.
“We cannot possibly allow inflation to become a runaway train — it’s bad for growth and bad for people,” she said. “Bad especially for poor people.”
The IMF predicts that global inflation will rise from 4.7 per cent to 8.8 per cent in 2022 but fall slightly next year to 6.5 per cent, while global economic growth is expected to slow.
The outlook comes as the war in Ukraine will soon enter its ninth month, and amid worsening violence that could further threaten global security and disrupt energy and food supplies.
The world economy could be at an inflection point, Ms Georgieva said.
“Are we experiencing a fundamental shift in the world economy from relative predictability and stability to greater uncertainty and volatility,” she said.
“What does it mean for policymakers? Clearly, a much more complex time.”
The IMF chief said “steady hands on the policy levers” are required to navigate the challenging economic outlook.
The World Bank’s recent report on the Middle East and North Africa region's economic outlook highlighted modest, but uneven growth.
GCC economies have fared well this year, with a 6.9 per cent growth projection for 2022, driven by high oil prices and higher growth rates in non-oil sectors.
Developing oil exporters are forecast to grow at lower levels, expanding 4.1 per cent this year and slowing to 2.7 per cent in 2023.
Jihad Azour, the IMF’s Director of the Middle East and Central Asia Department, emphasised on Thursday that the region needs to prioritise price stability, Covid-19 pandemic relief, food and energy security, and diversifying economies.
“The limited policy space in several countries raises the urgency of pressing ahead with structural reforms to bolster economic growth, while transforming economies to become more resilient, sustainable, and diversified as well as also becoming more inclusive,” Mr Azour said at the IMF conference.
He echoed the World Bank's report on the GCC’s relative resilience.
“Increase in oil price and commodities, for oil exporting countries, that has compensated for the impact of increased interest rates,” Mr Azour told reporters at the IMF conference.
“In addition to that, countries in the GCC were able to obtain lower levels of inflation and have kept the reform programmes that they have started and have helped them diversify their source of revenue.”
David Malpass, President of the World Bank, called the current environment “very challenging.”
The World Bank recently lowered its growth outlook from 3 per cent to 1.9 per cent, which Mr Malpass said was “dangerously” close to a “world recession.”
As the world's leading financial institutions try to navigate these challenging times, Ms Georgieva said; “it is so important that we do demonstrate, we understand the urgency to act and we understand that acting together makes a difference to the lives of hundreds of millions of people.”
Tips for SMEs to cope
- Adapt your business model. Make changes that are future-proof to the new normal
- Make sure you have an online presence
- Open communication with suppliers, especially if they are international. Look for local suppliers to avoid delivery delays
- Open communication with customers to see how they are coping and be flexible about extending terms, etc
Courtesy: Craig Moore, founder and CEO of Beehive, which provides term finance and working capital finance to SMEs. Only SMEs that have been trading for two years are eligible for funding from Beehive.
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Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
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