Over-the-counter monetary tightening could cause full-scale recession, says IMF

The managing director of the International Monetary Fund (IMF), Kristalina Georgieva, said that a very aggressive monetary tightening could trigger a materialization of recession fears “on a large scale” in the world. The concern is mainly about the effect on developing countries, according to her.

“The risk of recessions has increased. We estimate that about a third of the world economy would have at least two consecutive quarters of negative growth between this and next year”, reinforced Kristalina, during a debate at the opening of the organization’s annual meeting, in Washington.

The slowdown around the globe will cause, according to Kristalina Georgieva, a loss of US$ 4 trillion by 2026. “This is the size of Germany”, she said, reaffirming data already cited last week.

At his side in the debate, the president of the World Bank, David R. Malpass, also drew attention to the greater risk of recession in the world as a result of the monetary tightening underway to contain the escalation of inflation. “So where is the real risk and danger of a worldwide recession next year?” he asked, citing the slowdown in some European economies. “So let’s see where this goes next year,” he warned.

The managing director of the IMF also highlighted the current challenging scenario for economic policymakers, in a speech during a panel with representatives of civil society this Monday. In the monetary field, she highlighted that inflation needs to be controlled with monetary tightening. Central banks, however, must be careful not to exaggerate the increase in funding costs or make decisions that are too soft.

As for fiscal policies, the focus should be on social groups that “really need” support.

Kristalina Georgieva recommends that authorities “don’t spread fiscal support to the rich” as “they don’t need it” and that can make the approach too costly and inefficient.

climate crises

The managing director of the IMF also stated that humanity will survive high inflation and periods of recession, no matter how bad their impacts are, mainly for the poorest, but not “unshakable climate crises”. She reinforced the concern about the impacts of the climate, in warnings that have been made since last week in studies by the Fund, drawing attention, above all, to emerging markets, which, as they are the ones that pollute the most, have more challenges ahead. .

“It is bad to have inflation, but we will survive as humanity, and it is very bad to have recessions. It would affect people horribly, especially poor people, but we can survive this as humanity. We cannot survive an unshakable climate crisis, so mobilizing today for a more resilient tomorrow is exactly what we must do,” Georgieva said during the opening debate of the IMF’s annual meetings earlier.

At the beginning of her speech, she highlighted that in the last three years, unthinkable events have occurred and have generated significant impacts. Among them, she cited the pandemic, the Russian invasion of Ukraine and even “climate disasters” on all continents.

“We have to work so fast now to make room for the climate problems that developing countries are facing the most,” agreed the World Bank’s Malpass.