The global economy faces “the biggest test since the Second World War” said International Monetary Fund (IMF) chiefs in a post Sunday, as world leaders convene May 23–26 in Davos, Switzerland, for the World Economic Forum (WEF) Annual Meeting 2022.
Russia’s invasion of Ukraine has exacerbated the COVID-19 crisis, destroying lives and economic growth while driving up inflation, said the post, co-authored by managing director of the IMF Kristalina Georgieva, deputy director Gita Gopinath, and strategy director Ceyla Pazarbasioglu.
Tightening monetary measures, implemented by central banks around the world, have placed further pressure on highly-indebted nations, while food and energy price spikes have affected almost everyone, said the authors.
In addition, they pointed to a “confluence of calamities” as global supply chains are disrupted, along with the continuing threat of climate change and increased volatility in financial markets.
According to the trio, whatever response the IMF undertakes is hampered by the Russian invasion, leading to increased risk of “geoeconomic fragmentation.”
“We have at least four crises, which are interwoven. We have high inflation … we have an energy crisis … we have food poverty, and we have a climate crisis. And we can’t solve the problems if we concentrate on only one of the crises,” German Vice Chancellor Robert Habeck said during a WEF panel discussion.
“But if none of the problems are solved, I’m really afraid we’re running into a global recession with tremendous effect … on global stability,” Habeck added.
Speaking in a Davos panel on Monday, Georgieva said that the calamities have “darkened” the economic outlook but she does not expect a recession soon. “No, not at this point. It doesn’t mean it is out of the question,” she said.
An IMF graph showed that after peaking during the COVID-19 pandemic and then falling sharply, “overall uncertainty” has once again surged.
While “forces of integration” have boosted the global economy, Sunday’s post warned that disintegration could hurt trade conditions for developing nations, due to reconfigured supply chains. Meanwhile, advanced economies would inevitably face higher prices, leading to sustained inflationary pressures.
The IMF chiefs suggested four priorities for “restoring trust in the global system,” which they believe is the solution to these issues.
The first priority is to lower trade barriers and diversify imports and exports to repair supply chains, a key piece of a functioning global economy.
The second is to assist low-income countries with restructuring debt liabilities. The post called for “clear procedures and timelines for debtors and creditors.”
The third is to modernize cross-border payments. The IMF proposes a global public digital platform. The new platform would connect central bank digital currencies, so “everyone can send money at minimal cost and maximum speed and safety,” said the post.
Finally, the post calls climate change “the existential challenge that looms above everything.” Carbon pricing and investment in renewables would accelerate the transition to green energy.
In conclusion, the IMF chiefs mentioned “some hopeful signs,” including reforms to global corporate taxation agreed upon by 137 countries, to “ensure that multinational enterprises pay their fair share wherever they operate.”