IMF says the global economy faces “its biggest test” since World War II. In Davos, the future is debated.
Crisis after crisis, the global economy is being pushed to the edge of a precipice.
On the day that the first in-person World Economic Forum since 2020 opens in Davos, Switzerland, this Monday, the International Monetary Fund says the economy faces “perhaps its biggest test since the Second World War”.
“We face a potential confluence of calamities,” IMF Managing Director Kristalina Georgieva said in a statement.
Georgieva warned that Russia’s invasion of Ukraine has “aggravated” the effects of the Covid-19 pandemic, weighing on the economic recovery and stoking inflation as the cost of food and fuel rises.
Rising interest rates are increasing pressure on heavily indebted countries, companies, and households. Market turmoil and ongoing constraints on logistics chains also pose a risk.
And then there’s climate change.
The head of the International Energy Agency urged countries to make the right investment choices in response to the shortage of fossil fuels, triggered by Russia’s attack on Ukraine.
“Some people may use the Russian invasion of Ukraine as an excuse for … a new wave of investment in fossil fuels,” IEA chief Fatih Birol said in a discussion in Davos. “This will forever close the door to achieving our climate goals.”
The scale of the economic challenge was underscored by a new OECD report on Monday, which shows that the combined GDP of the G7 countries shrank by 0.1% in the first quarter of this year, compared with the previous three-month period.
“We cannot solve problems if we only focus on one problem,” said German Economy Minister Robert Habeck. “If none of these problems are resolved, I fear, we will see a global recession – with huge implications, not just for the climate, for climate protection, but for global stability.”
To limit economic stress, the IMF is asking government officials and business leaders gathered in Davos to discuss lowering trade barriers.
But as countries grapple with growing dismay over domestic cost-of-living crises, some are going in the opposite direction, implementing restrictions on trade in food and agricultural products that could exacerbate shortages and drive up prices around the world. .
Earlier this month, India’s decision to ban wheat exports drove up the price of the cereal, even though it is a relatively small exporter. Indonesia banned most palm oil exports in April to protect domestic supplies, but will lift the ban this week.
Speaking during a visit to Tokyo, US President Joe Biden said Monday that a recession is not inevitable and reiterated that the White House is considering removing some Trump-era tariffs on Chinese goods, which the Treasury Secretary, Janet Yellen, said they do more harm than good to American consumers and businesses.
Jason Furman, who previously served as President Obama’s top economic adviser, told CNN that the United States “is in the least bad shape of any economy in the world.” Consumers are worried about inflation, but they still have a big bag of savings and spending remains strong.
But Furman thinks the risk of recession increases in 2023, as the US Federal Reserve (Fed) raises interest rates to contain inflation. “I’m more concerned about recession risks in the future, a year or so from now,” he said on the sidelines of the Davos forum. “I think the Fed should be trying a soft landing. I don’t know if they will succeed.”
Meanwhile, China could see its economy shrink this quarter because of the impact of Covid-19 lockdowns in Shanghai, Beijing, and dozens of other cities, and the fallout from a housing crisis. The country’s central bank on Friday presented the biggest interest rate cut on the record, following the collapse of home sales.
Zhu Ning, a professor at the Shanghai Advanced Institute of Finance, said he believed officials still had ample options to address the array of challenges facing the world’s second-largest economy. “China still has a lot of room if it wants to reduce interest rates, give monetary stimulus to the economy,” he said.
Source: With Agencies