The Managing Director of the International Monetary Fund, Kristalina Georgieva, has warned that the global economy is facing a decade of "low growth" and "popular discontent", despite avoiding a very scary recession.
Georgieva said: "The worrying reality is that global activity is weak by historical standards and growth prospects have slowed since the global financial crisis." Inflation has not been completely defeated, fiscal buffers have become ineffective and debt has increased, posing a major challenge to public finances in many countries.
He said that tackling high levels of debt in a record election year, when uncertainty about the future and years of economic shock have peaked, and geopolitical tensions are increasing the risk of fragmentation in the global economy, he said.
In her speech to the Atlantic Council, Georgieva emphasised that without the implementation of measures to increase productivity and reduce the debt burden, the world faces a decade of slow and disappointing economic growth, which she called the "decade of the twenties"
Georgieva's comments come as she welcomes central bank governors and finance ministers to Washington next week for the spring meetings of the International Monetary Fund and World Bank. The fund will release an updated set of forecasts for the global economy next week, which Georgieva said will predict stronger growth than in the last global economic forecast in January. The International Monetary Fund announced that global GDP growth will reach 3.1 percent in 2024 and 3.2 percent in 2025.
Strong growth in the US and major developing economies such as Indonesia and India, plus a sharper-than-expected decline in inflation at the end of 2023, helped boost the global economy and labor markets were bolstered by increased immigration. In this way, according to Georgieva, a global recession and a period of stagnant inflation were avoided. However, he cautioned against current complacency, saying that since the start of the pandemic in 2020, the Corona pandemic has damaged global production by about $3.3 trillion, and that the effects of this process have disproportionately affected the most vulnerable countries.
He said the main driver of weaker growth had been a significant and widespread decline in productivity, and urged countries to take measures to strengthen governance, reduce red tape, increase women's participation in the labor market, improve access to capital and adapt to climate change.
While higher interest rates have been effective in combating inflation, it means that governments' debt servicing costs are now at their highest level in decades.
According to the head of the International Monetary Fund, in advanced economies, with the exception of the United States, the payment of interest on the public debt will be on average about five percent of government revenues this year. But the cost of debt service is very high in low-income countries. Their interest payments will average about 14 percent of government revenue, nearly double the level of the past 15 years.
Interest rates in many advanced economies are now at their highest levels since the turn of the millennium, but the US Federal Reserve, European Central Bank and Bank of England are expected to cut borrowing costs later this year. But Georgieva urged caution on rate cuts, saying there could be new inflation surprises and that a further period of monetary tightening might even be needed.
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