Washington [US], April 12: With global growth outlook well below the historical average, and a growing divergence in economic fortunes, the head of the International Monetary Fund (IMF) on Thursday urged policymakers to deal decisively with inflation and debt, and promote economic transformation.
"The global environment has become more challenging. Geopolitical tensions increase the risks of fragmentation of the world economy," IMF Managing Director Kristalina Georgieva said in a speech at the Atlantic Council, ahead of the 2024 Spring Meetings of the IMF and the World Bank Group (WBG).
Referring to global economic activity as weak by historical standards, Georgieva said the global output loss since 2020 is around 3.3 trillion dollars, with the costs disproportionately falling on the most vulnerable countries.
Georgieva highlighted a growing divergence within and across country groups.
Among advanced economies, the United States has experienced the strongest rebound, helped by rising productivity growth. By contrast, activity in the euro area is recovering much more gradually, reflecting the lingering effects of high energy prices and weaker productivity growth, the IMF chief said.
"But the most striking divergence is for low-income countries for whom scarring has been the most severe. Among these nations, fragile and conflict-affected economies are bearing the heaviest burden," she said.
The first thing for policymakers, according to Georgieva, is to bring back price stability.
In the final quarter of 2023, headline inflation for advanced economies was 2.3 percent, down from 9.5 percent just 18 months earlier. For the median emerging market and developing economy, inflation declined to 4.1 percent.
"We expect the trend to continue in 2024, creating the conditions for major advanced economy central banks to begin cutting rates in the second half of the year," she said, while noting that the pace and timing of the monetary pivot will vary.
"Where necessary, policymakers must resist calls for early interest rate cuts. Premature easing could see new inflation surprises that may even necessitate a further bout of monetary tightening," said Georgieva.
"On the other side, delaying too long could pour cold water on economic activity," she added.
The IMF chief said that fiscal buffers are exhausted and debt levels in most countries are simply too high.
Higher interest rates are pushing up the cost of servicing debt, with the cost of servicing debt "most painful" in low-income countries, Georgieva said. "Their interest payments are set to average about 14 percent of government revenue-roughly double the level from 15 years ago," she said.
Georgieva urged countries to reach sustainable debt levels and build stronger buffers to cope with future shocks. "For some, delay is simply not an option: consolidation must start now to avoid tipping into debt distress," she said.
Source: Xinhua