Stronger demands for goods and services and moderating inflation have increased the chances that the global economy is moving towards a soft landing, International Monetary Fund managing director Kristalina Georgieva said on Thursday.
In a speech outlining the IMF's priorities before the 2023 Annual Meetings in Marrakesh next week, Ms Georgieva said that the global recovery of economic shocks was “slow and uneven”.
The blows the world has felt since 2020 have led to $3.7 trillion in global output loss, she said. Global growth is below the 3.8 per cent average in the decades before the Covid-19 pandemic.
But despite this uneven growth, there remains hope that a global recession is avoidable.
“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 in prepared remarks from Abidjan, Cote d'Ivoire.
“This increases the chances for a soft landing for the global economy. But we can’t let our guard down.”
Inflation is also moderating, but for some countries it will remain above target for another two years.
Many borrowers are also feeling the effects of tighter credit conditions. In the US, these pressures are reflected in 10-Year Treasury yields and in mortgage rates, which have recently climbed to their highest levels in 16 years and 23 years, respectively.
Ms Georgieva remained adamant that interest rates must be elevated for a longer period of time, warning about the consequences of easing monetary policy too soon.
“Fighting inflation is the number one priority,” she said.
Protecting against future shocks
There are stark differences to how countries have rebounded from economic shocks. The US is the only country to have returned to its pre-pandemic path.
Ms Georgieva also singled out India and Cote d'Ivoire as countries showing strong momentum.
Meanwhile, Chinese economic activity is below expectations and low-income countries are experiencing “anaemic growth”, she said.
Ms Georgieva said these developing countries were being hit the hardest because they lack the capacity to absorb the effect of the economic shocks.
“Economic fragmentation threatens to further undermine growth prospects, especially for emerging and developing economies, including right here in Africa,” she said.
Ms Georgieva said countries must rebuild protection against economic shocks, adding that recent ones have led to an increase in debt burdens for many countries in Africa and elsewhere.
Twenty per cent of emerging countries and more than half of low-income countries are still at risk of debt distress, she said.
“This is why we urgently need to strengthen the global financial safety net,” Ms Georgieva said.
She called on IMF partners to bolster the fund's quota resources so it is better equipped to strengthen the safety net and respond to needs of developing economies.
The IMF has approved about $300 billion in financing to 96 countries since the pandemic, according to the fund's 2023 annual report.
Ms Georgieva also called on members to help fund the IMF's Poverty Reduction and Growth Trust, as well as its Resilience and Sustainability Trust, which provides long-term funding to the most vulnerable nations.
The IMF's 2023 Annual Meeting in Morocco will be the first held on African soil since 1973.
