The report on the world economic outlook, which the International Monetary Fund (IMF) will present next week, states that “global growth is marginally stronger due to solid activity in the United States and many emerging markets.”
This was said this Thursday by Kristalina Georgieva, executive director of the IMF, in her appearance at the Atlantic Council in Washington, in what is the prologue to the spring meeting of her institution. The Bulgarian economist anticipated that the medium-term global growth projection remains well below its historical average, just above 3%.
But, in view of the current panorama, “it is tempting to breathe a sigh of relief,” he said. “We have avoided a global recession and a period of stagflation (high inflation and economic stagnation) as some had predicted,” she added.
In a nuance already common in the IMF parameters, a blast of desert dust comes to the fresh air. “There are still plenty of things to worry about. The global context has become more challenging. Geopolitical tensions have increased the risk of fragmentation of the global economy. “As we have learned in recent years, we are in a world where we can expect the unexpected.”
Their data showed that since Russia invaded Ukraine, trade growth between politically distant blocs has slowed 2.4% more than between countries that are closely aligned.
The most optimistic picture emerges, according to his analysis, from robust domestic consumption and business investment. In addition, flexibility in supply chain problems has helped. In this framework, inflation has fallen faster than previously expected.
“The resilience of the economic world, primarily due to previously built solid macroeconomic fundamentals, has been aided by strong labor markets and an expansion of the workforce. The power of this market is due in part to immigration, which has been very important in countries with an aging population,” he noted.
However, “the sad reality is that global activity is weak by historical standards and growth prospects have slowed since the global financial crisis. Inflation is not completely defeated, fiscal buffers have been exhausted and debt has increased, which represents a great challenge for public finances in many countries,” Georgieva indicated.
The main reason for this weakness is due to the slowdown in productivity. This factor represents half of the slowdown in advanced economies and almost all of it in low-income countries.
This makes us go from “the turbulent twenties” of this century to “the warm twenties if there is no course of coercion.” He defined that lukewarmness as “a slow and disappointing decade.”
Given this, legislators can avoid difficult decisions and hide their heads or decisively confront inflation and debt, promote economic transformation by boosting productivity, inclusion and sustainable growth.
“What we need are twenty transformers,” he stressed. He pointed out that good policies have been seen since inflation peaked in mid-2022. He recalled that the increase stood at 2.3% in the last quarter of 2023 globally in advanced economies, far from that peak of 9 .8%.
He expressed his confidence that this path will continue with the creation of conditions for central banks to begin cutting interest rates “in the second half of this year,” although the pace and schedule may vary.
“Central banks must maintain their independence, policies must resist calls for premature cuts. A premature decompression can lead to the surprise of new inflation and the need to return to a restrictive money policy,” she stressed. “But on the other hand, delaying these cuts too much could be pouring cold water on economic activity.” His thesis is the same one endorsed by Jerome Powell, president of the United States Federal Reserve (Fed), who is weathering pressure from investors and quite a few legislators from both parties.
“For many countries, the prospect of a soft landing and strong labor markets means there is no better time to act, to achieve sustainable debt levels and build fiscal supports against possible future shocks. For some, delay is not an option. “Consolidation must begin now to avoid debt stress,” the IMF chief insisted.
These forecasts must also keep in mind the green economy and a new reality marked by technological advances that influence many sectors, from manufacturing to health care or financial services. “We are in a time of transition towards a digital economy and, now, artificial intelligence (AI) is going to exponentially accelerate the fourth Industrial Revolution,” he argued.
“This brings us enormous potential and also risks,” he said. And he recalled a recent IMF study that showed that AI can affect 40% of jobs worldwide and up to 60% in advanced economies.
“It can improve worker productivity, but it also threatens jobs. Investing in digital infrastructure and capabilities, as well as a strong safety net, will determine the pace of AI adoption and its impact on productivity,” he reiterated.
