As the world economy faces headwinds, current growth forecasts offer a hedge against a possible global recession, said on Monday (23) the number two official of the IMF (International Monetary Fund).
Among the top threats to economic growth, IMF First Deputy Managing Director Gita Gopinath told Reuters the conflict in Ukraine could escalate, adding: “You can have sanctions and counter-sanctions.”
Gopinath said in an interview at the World Economic Forum in the Swiss resort of Davos that other challenges include inflation, interest rate tightening by central banks and slowing Chinese growth.
“So all of this provides downside risks to our forecast,” Gopinath said, referring to the IMF’s 2022 global growth estimate released last month of 3.6%, a downgrade from January’s 4.4% forecast. .
“I would say at 3.6% there is a buffer,” she said, admitting, however, that the risks are uneven across the world.
“There are countries that are being hit hard… countries in Europe that are being hit hard by the war, where we can see technical recessions,” added Gopinath.
Gopinath said that inflation “will remain significantly above the central bank’s targets for a while”, adding: “It is very important for central bankers around the world to deal with inflation as a clear and present danger, this is something with which they have to deal with very forcefully.”
“Financial conditions could tighten much faster than we’ve seen. And growth in China is slowing.”
The Federal Reserve, the US central bank, is ahead in the tightening among the biggest central banks, with two rate hikes this year. The second, 0.50 percentage point, was the highest in 22 years. At least two more increases of this magnitude are expected at upcoming meetings.
“What’s very important is that the Fed looks at the data carefully and responds at the scale necessary to handle the incoming data,” Gopinath said.
“So if inflation is especially widespread … it’s going up even higher, they might need to react more strongly.”
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