In the midst of the ongoing Russia-Ukraine war, the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva stated that the organisation would downgrade its expectations for global economic growth for July. She stressed that they are facing a global economic outlook that has “darkened significantly”, as per the statement. This warning came as G20 ministers and governors of central banks are scheduled to convene in Bali this week.

Indicating that the outlook is still “extremely uncertain” and citing the continued COVID-19 outbreak, higher-than-anticipated inflation, and the conflict in Ukraine, Kristalina Georgieva implied that the IMF might downgrade its projection for global economic growth this month. Georgieva claimed that the current global scenario is aggravating the expense of living conditions for millions of people and the poorest are suffering the most. It is to mention that inflation in the US, the world’s largest economy, has risen to 9.1%, the highest level in over 40 years.

IMF warns of energy crisis and recession

The IMF had just lowered its global growth prediction for this year and next to 3.6%, and they had cautioned that this may worsen given significant negative risks when the G20 last convened in April. Since then, some of those concerns have come to pass, and the several crises the globe is currently experiencing have gotten worse, according to the IMF blog post.

Kristalina Georgieva further said, “The human tragedy of the war in Ukraine has worsened. So, too, has its economic impact especially through commodity price shocks that are slowing growth and exacerbating a cost-of-living crisis that affects hundreds of millions of people—and especially poor people who cannot afford to feed their families. And it’s only getting worse.”

The IMF head even noted that unexpectedly strong inflation has spread beyond the cost of food and energy. She said that major central banks have responded by announcing more monetary tightening, which is essential but will slow the recovery. Economic activity has been impeded by persistent pandemic-related disruptions, particularly in China, and fresh bottlenecks in global supply networks, she claimed.

Recent data point to a disappointing second quarter, the IMF chief said, adding that “it is going to be a tough 2022—and possibly an even tougher 2023, with increased risk of recession,” she cautioned.

Besides this, Perry Warjiyo, the governor of Indonesia’s central bank, has been sceptical about the possibility of coming to a decision about the next course of action, saying: “We hope for the best, but of course prepare for the worst,” The Guardian reported.

Inflation, according to Georgieva, has “broadened beyond food and energy prices,” forcing many central banks to raise borrowing costs, a trend she claimed will “need to continue.”

In an effort to combat inflation, which has increased to 7.7%, Canada became the most recent major central bank to raise interest rates, lifting its key rate from 1.5% to 2.5%. According to the IMF, 75 central banks increased interest rates by an average of 3.8 times in the previous year. However, Georgieva notes that if this trend changes, “even more harm to growth and employment” would result, and that “acting now will hurt less than acting later.”

(Image: Shutterstock/ AP)