The International Monetary Fund’s boss said the global economy was like a ‘ship in choppy waters’ as she warned the current crisis was ‘more likely to get worse than to get better’.
Kristalina Georgieva, managing director of the IMF, said the organisation was preparing to unveil more downgrades next week which would see £3.6 trillion wiped off global output between now and 2026.
This massive loss of wealth would be larger than the size of the German economy.
Warning: Kristalina Georgieva said the IMF was set to unveil more downgrades which would see £3.6 trillion wiped off global output between now and 2026
And in a jibe at Liz Truss’s tax cuts, she cautioned governments against providing ‘indiscriminate fiscal support’ to their citizens – instead pressing policymakers to direct help at the poorest.
Georgieva’s speech at the opening of the IMF’s annual meeting in Washington DC came just days after the global watchdog issued a rebuke to the Prime Minister and Chancellor Kwasi Kwarteng.
It warned last week that their tax cuts in September’s mini-Budget risked undermining the Bank of England’s efforts to curb rampant inflation.
Repeating that message yesterday, Georgieva said: ‘While monetary policy is hitting the brakes, you shouldn’t have a fiscal policy that is stepping on the accelerator. This would make for a very rough and dangerous ride.’
Truss and Kwarteng have defended their policies by claiming that over the long term, they will boost growth.
But unless inflation is brought under control, Georgieva said, future interest rates would have to be ‘much higher and more sustained, causing massive harm on growth and massive harm on people’.
The IMF has cut its global growth expectations three times this year, to just 3.2 per cent for 2022 and 2.9 per cent for 2023.
Georgieva said that when the organisation releases its next World Economic Outlook next week, it will downgrade growth for next year yet again. ‘And we will flag that the risks of recession are rising,’ she said.
‘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.
And, even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices.’
Several economists think the UK might already be in a recession.
The eurozone is also teetering on the brink, while the United States has already experienced two successive quarters of economic contraction.
Georgieva said: ‘This is not easy, and it will not be without pain in the near term. But the key is to avoid much greater and longer-lasting pain for everybody.’
