The International Monetary Fund (IMF) is confident that growth in the euro area will recover gradually, but considers that “further tightening of monetary policy” is necessary to return inflation to the target (2%). His recommendation is to maintain a “tight” monetary policy, despite the complaints that countries such as Italy and Portugal have already expressed.
This recommendation to continue giving priority to inflation was extended to the world economy as a whole. And it is that beyond figures, equations, calculations and forecasts, the economy is created in the image and likeness of humanity. One only has to think of one of those boxers who receives a beating with sticks, who remains on his feet for who knows how, who goes to the corner at the end of the round exhausted and bloody, but who, when the bell rings, returns to the ring to continue receiving sticks without kissing the canvas.
This is the image that is reminiscent of the description of the global economy made by Kristalina Georgieva, director of the International Monetary Fund (IMF), at a meeting of finance ministers and central bank governors of the so-called G20.
“The world economy has shown some resilience,” he stressed. “Despite the successive shocks in recent years and the rapid rise in interest rates, global growth, although anemic by historical standards, remains firmly in positive territory, supported by a solid labor market and robust demand for services,” he stressed. Saying this, the fighter still takes more punches and staggers. “Activity is slowing down, especially in the manufacturing sector,” he warned. “Looking to the horizon, the medium-term outlook remains weak,” he warned.
He focused his attention, above all, on the field of rising consumer prices, where he stressed that there has been encouraging news and “the trend is finally downward”. However, the punishment is not over. “Headline inflation remains too high and core inflation remains stagnant despite significant monetary policy tightening,” he said.
“While progress has been made, the job is not done. A premature celebration can reverse the gains made in the disinflation process, ”he insisted.
In order to mitigate the risks, in the face of inflation that could be prolonged, it prescribed to continue on the path of this tightening monetary policy, while fiscal policy must initiate a consolidation that allows economic shock absorbers to be rebuilt.
This call for perseverance from the command of the Fund comes after the Federal Reserve (Fed or central bank of the United States) agreed at its meeting last June to establish a pause in interest rate rises after ten consecutive increases, which left them at 5-5.25%. This is the highest level in nearly two decades. Jerome Powell, its president, clarified that it was only a temporary decision and that throughout this year there could be at least a couple of new increases.
The first appointment to observe this new stage will come next week, when the Fed will hold its July meeting. The next day, July 27, the ECB will meet, which now has rates at 4%. Although inflation has receded in the US to 3% in June (4.8% core), after peaking at 9.1% in 2022, Powell said, in line with Georgieva, that the work is not done and that the healthy target for the Fed is 2%. Another thing is what many analysts think, who have long sensed a possible recession and not a “soft landing” as Powell and other economists predict.
From progressive US sectors it is reiterated that the monetary escalation causes damage to the weakest pockets. But the director of the Fund, who is committed to the hard line, considers that this task is necessary. Should the intensity ease, she noted, inflation could drag on even longer, requiring further tightening “at the risk of fragmentation weighing even more on growth.”
