IMF head warns world economy is set for weakest near-term growth since 1990

International Monetary Fund Managing Director Kristalina Georgieva said Thursday that global growth will expand less than 3% this year, ahead of the IMF/World Bank meetings next week.

“With rising geopolitical tensions and still-high inflation, a robust recovery remains elusive,” Georgieva said in a speech in Washington.

The IMF projects global growth to remain around 3% over the next five years –– the lowest medium-term growth forecast since 1990 and well below the average of 3.8% from the past two decades.

The IMF will release more details about its growth outlook when it releases its latest World Economic Outlook next week. An outlook of less than 3% growth this year would be in line with January’s estimate of 2.9% — which was 0.2% higher than previously forecast in October.

Georgieva said for 2023, emerging economies are the bright spot—with India and China expected to account for half of global growth. The IMF sees economies in the US and Europe slowing, where higher interest rates weigh on demand. About 90% of advanced economies are projected to see a decline in their growth rate this year, Georgieva said.

The managing director also weighed in on navigating inflation in the midst of global banking issues following the failures of Silicon Valley Bank in the U.S. and collapse of Credit Suisse, which led to a hastily arranged takeover by UBS. Georgieva said as long as financial pressures are contained, central banks should “stay the course,” implying continued rate hikes, to bring down inflation.

But at the same time, she said central banks “should address financial stability risks when they emerge through appropriate provision of liquidity. The key is to carefully monitor risks in banks and non-bank financial institutions, as well as weaknesses in sectors such as commercial real estate.”

She added: “Concerns remain about vulnerabilities that may be hidden, not just at banks but also non-banks—now is not the time for complacency.”

Story continues

Georgieva said bank failures amid higher interest rates and low liquidity exposed risk management failures at specific banks, as well as supervisory lapses.

Georgieva also called for international cooperation to boost global trade, noting IMF research that shows that the long-term cost of trade fragmentation could be as high as 7% of global GDP—roughly equivalent to the combined annual output of Germany and Japan.

“If technological decoupling is added, some countries could see losses of up to 12% of GDP,” she said. “And the fragmentation of capital flows, including foreign direct investment, would be another hit to the prospects for global growth.”