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By Heather Scott
IMF chief Kristalina Georgieva urged global policymakers Thursday to take concerted action to avoid a “dangerous ‘new normal,'” as the risks of a worldwide recession are driven ever higher by repeated economic shocks. online news
In a speech ahead of the fund’s annual meetings next week, the IMF’s managing director said it was critical to “stabilize the global economy by addressing the most immediate challenges” — including rampant inflation.
Policymakers need to act together to “prevent this period of heightened fragility from becoming a dangerous ‘new normal,'” Georgieva said.
But she warned the process will be painful — and that if central banks move too aggressively to tamp down price pressures, it could trigger a “prolonged” economic downturn.
Finance ministers and central bank governors from more than 180 nations will gather next week in Washington for the first fully in-person meeting of the International Monetary Fund and World bank since 2019, prior to the Covid-19 pandemic.
Faced with the “darkening global outlook … the risks of recession are rising,” Georgieva said — announcing that the crisis lender plans to once again downgrade its 2023 forecast for the world economy, in the forecasts due to be published next week for the annual meeting.
One-third of countries are expected to see at least two quarters of contraction, and “even when growth is positive, it will feel like a recession” because of rising prices eroding incomes, she said.
The fund in July slashed its growth forecast for this year to 3.2 percent, and for next year to 2.9 percent — the third consecutive downgrade.
- Shock, after shock –
The meetings come at a difficult time for the global economy, with the pandemic largely under control, but soaring inflation and rising interest rates now threatening to reverberate around the globe and choke off nascent recoveries.
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“In less than three years we lived through shock, after shock, after shock,” Georgieva said in her speech at Georgetown University.
Global supply snarls already were a challenge for the world economy as demand surged following the pandemic slowdown, fueling inflation worldwide, and strains worsened in the wake of the Russian invasion of Ukraine — which Georgieva called a “senseless war” — sending food and food prices soaring.
“Far from being transitory, inflation has become more persistent,” and acting before high prices become entrenched is a key challenge for policymakers, Georgieva said — warning that “the cost of a policy misstep can be enormous.
“Not tightening enough would cause inflation to become deanchored and entrenched,” but moving “too much and too fast — and doing so in a synchronized manner across countries — could push many economies into prolonged recession,” she said.
Despite the risks, central banks need to continue “act decisively.”
“This is not easy, and it will not be without pain in the near term,” she cautioned. “But the key is to avoid much greater and longer-lasting pain for everyone later on.”
- Debt distress –
Georgieva stressed the need for fiscal policies to help the most vulnerable segments of society, but warned that efforts must be targeted “with a laser-sharp focus on lower-income households,” to avoid acting against the current of monetary policy.
She cautioned against relying on price controls which are not affordable nor effective.
The pandemic forced many countries to take on more borrowing, and now many are already facing or at risk of debt distress amid rising interest rates. That “raises the risk of a widening debt crisis” which could further harm global growth.
To reduce the risk “large creditors such as China and private-sector creditors have a responsibility to act,” she said, calling for “faster and more predictable” action on debt restructuring.
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Notes From APS Radio News
During the past few years, a number of the world’s central banks have engaged in massive programs of monetary expansion, even as jobs and businesses were lost by way of virus-related restrictions and quarantines.
For example, beginning in March of 2020, the US Federal Reserve engaged in a substantially greater program of monetary expansion by purchasing hundreds of billions of dollars of Treasury and corporate bonds.
Since the early part of March 2020 to date, the Federal Reserve has added over $4 trillion to its holdings.
In particular, whereas on or about February 24, 2020, the holdings of the Federal Reserve stood at $4.2 trillion, on or about January 17, 2022, the holdings of the Federal Reserve stood at about $8.9 trillion.
As well, the Federal Reserve has kept interest rates low.
Recently, Jerome Powell, the head of the Federal Reserve, said that he wasn’t concerned about inflation and that, for the none, the Federal Reserve would keep interest rates at low levels.
Another examples is that of the Bank of Japan.
According to Fred Economic Data, as of October 2021, the Bank of Japan’s holdings were about $6.4 trillion or about 725 trillion Yen.
In the early part of March 2020, the Bank of Japan’s holdings were $5.3 holdings. During the period mentioned, the Bank of Japan added over one trillion dollars to its holdings.
A number of corporations have been borrowing money inexpensively and have been purchasing their own shares of stocks, increasing share prices of stocks.
Still, there are concerns among investors.
A number of them have expressed concerns about central banks’ eventually increasing interest rates, as, during the past year, inflation levels have been increasing.
The combination of low interest rates, expansive monetary policies, fiscal stimulus programs, which themselves have infused trillions into the US economy, and shortages of goods and services caused by virus-related restrictions and lockdowns has increased levels of inflation.
Investors also have worried, for example, about announcements that were made by companies like Toyota and VW; months ago, those companies announced that because of shortages of particular types of material, they would be reducing levels of production.
Months ago, the results of a survey of UK manufacturers were released.
That survey indicated that many businesses in the UK were concerned about shortages of supplies.
In general, jobs and businesses have been lost by way of mandates, restrictions and quarantines, which, in their turn, were imposed by way of the virus narrative.
In the US, overall, the mortality rate of the virus is about .069%, according to Statista, an award-winning service.
The recovery rate is over 99% for most age groups.
What has followed in the wake of lockdowns and mandates has been the infusion of trillions of dollars into the US economy, the increasing succeess of online businesses like Amazon and other large online retailers, various bank and tech-related stocks, the shuttering of small to medium-sized businesses and the loss of millions of jobs.
Another result has been the increasing levels of inflation, especially those of food and fuel.
In official terms, for purposes of reporting, the US Labor Department uses what is called “core inflation”.
Core inflation excludes items like food and fuel, as those are deemed too volatile.