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Raising rates too quickly could trigger a ‘prolonged recession’, IMF chief warns


Minneapolis
CNN Business

The global economic outlook is darkening and the risks of recession are rapidly increasing: this is the latest message from the International Monetary Fund, which announced on Thursday that it would again reduce its growth forecasts.

“We estimate that countries representing about a third of the global economy will experience at least two consecutive quarters of contraction this year or next,” IMF Managing Director Kristalina Georgieva said in a speech at the Georgetown University. “And, even when growth is positive, it will look like a recession due to falling real incomes and rising prices.

The IMF projects that the world could lose $4 trillion in economic output by 2026.

“This is the size of the German economy – a massive setback for the global economy,” she said.

After global growth reached an annualized rate of 6.1% in October 2021 amid a strong post-pandemic recovery, estimates have since been regularly revised downwards by the IMF. The global financial institution now forecasts total growth of 3.2% this year and 2.9% next year.

These will be lowered again when the IMF releases its latest global economic outlook report next week, Georgieva said.

All of the world’s biggest economies are slowing down, she said, noting Europe’s energy crisis amid Russia’s war in Ukraine, China’s housing slump and historically high inflation in the states. -United.


Georgieva described the world as being in a period of “historic fragility”, going through crises such as a pandemic, a month-long war in Ukraine and harsh waves of extreme weather events that combined to drive an outbreak. dramatic and devastating prices.

“In less than three years, we have experienced shock after shock, after shock,” said the Bulgarian economist.

She urged policymakers to stay the course on tackling inflation, but warned that excessive monetary policy tightening could plunge the world into a prolonged recession.

“Insufficient tightening would cause inflation to become unanchored and entrenched, which would require future interest rates to be much higher and more sustained, causing massive harm to growth and massive harm to people,” he said. she declared. “On the other hand, tightening monetary policy too much and too quickly – and doing so in a synchronized way across countries – could push many economies into a prolonged recession.”

She also encouraged governments to respond with targeted and temporary fiscal policies to help support their most vulnerable citizens without increasing headline inflation.

This support should also extend to emerging markets and low-income countries at risk of debt distress and famine, she said.

“It’s more likely to get worse than better,” she said. “Uncertainty remains extremely high in the context of war and pandemic. There could be even more economic shocks.