Connecting the World Bank and IMF Annual Meetings, Rising Risk of Global Economic Recession, Calling for Support for Emerging Markets and Developing Economies

Southern Finance All-Media Reporter reports to Xiufang in Washington, USA.

On October 10th, local time, Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), and David Malpass, President of the World Bank, held a one-on-one dialogue entitled "The Way Forward: Coping with Multiple Crises in Turbulent Times" at the IMF headquarters, which kicked off the 2022 annual meeting of the IMF and the World Bank.

At the time of the annual meeting, the world economy is being dragged down by epidemic, inflation, geopolitical conflicts and other factors, and the downside risks are intensifying. In order to curb inflation, developed economies have accelerated the tightening of monetary policy, and the spillover effect has made emerging economies and developing economies "worse". Both the IMF and the World Bank have warned that the risk of global economic recession is rising, and they should unite to support emerging markets and developing economies.

(Source: IMF)

In his speech, Georgieva said that people all over the world are caught in an escalating cost of living crisis due to the impact of multiple factors such as the COVID-19 epidemic, the Russian-Ukrainian conflict and the climate disaster. The world is facing a transition from a relatively predictable environment with low inflation and low interest rates to a more turbulent and fragile world. Developing countries are particularly difficult.

Malpas said that there is a risk of world economic recession next year. The growth of developed economies in Europe is slowing down. The devaluation of the currency has made the debt level of developing countries heavier and heavier, and the rise in interest rates has aggravated the burden. Inflation is still the main problem for everyone, but especially for the poor. According to the relevant data of the World Bank, the number of poor people has increased by 70 million in the past two years. "There is a reversal in development. I call it the crisis facing development. One of the problems is that developed economies are occupying a lot of capital in the world in the form of fiscal deficits, large companies borrow a lot, and the central bank only buys bonds from developed countries. Therefore, this has brought pressure to development from a macro perspective. Personally, we can see the problems of education and energy shortage, fertilizer and food and crops. This is a major issue. " Malpas said.

Georgieva also pointed out that the risk of economic recession is rising. The IMF estimates that countries accounting for about one-third of the world economy will experience economic contraction for at least two consecutive quarters this year and next. From now until 2026, the global output loss caused by the economic slowdown will reach about 4 trillion US dollars, and the GDP equivalent to the size of a German economy will be erased.

"When we see such a picture, we want to know, what are the driving factors? What can I do? " Georgieva pointed out that the epidemic affected the supply chain, and the conflict between Russia and Ukraine led to the rise of prices, especially the prices of energy and food. Inflation remains stubbornly high and financial conditions must be tightened, which are faster than originally expected. As a result, the global economy, including the three major economies, is slowing down.

"In this context, the question we are going to ask this week is, what can be done?" Georgieva said that the IMF advocates taking action in three aspects.

First, control inflation. Inflation must not be allowed to become a runaway train. "If we don’t have strong actions, this may happen to us. But this is a very, very difficult road. Because, if you don’t do it well enough, we will be in trouble. Of course, inflation is a dramatic tax, especially for the poor. But if we are too tight, then the fear of economic recession will be realized on a large scale. We must take into account the strong dollar that has emerged with the tightening of financial conditions and its impact on developing countries. "

Secondly, we must provide necessary policy support, but it must be targeted, because if not, we are adding fuel to the fire of inflation. It is absolutely the top priority to jointly promote this year’s monetary policy and fiscal policy. For any "driver", it is necessary to avoid monetary policy stepping on the brakes and fiscal policy stepping on the accelerator.

Third, jointly support developing economies and emerging markets. These markets are particularly affected by the tightening of financial conditions and lack capital to tide over the difficulties. We must control the risk of debt crisis. Otherwise, "not only the affected countries will be affected, but the whole world will be affected. This will not be a beautiful picture. But if we unite and act together, we can reduce the pain in front of us in 2023. "

Malpas also stressed that this requires global joint efforts. He believes that developed economies have more capital and have the ability to really apply it to various sectors, which will help solve inflation. If there is a coordinated policy to promote supply growth, it will have a rapid effect on alleviating inflation expectations to some extent. This is very important for reducing inflation. "We must face the starting point that the interest rate level may be too low at the beginning of this cycle. Therefore, some parts of the world are still recovering to a level that may be neutral. It is very important to achieve this goal quickly. "

But Malpas said: "When considering capital flows, I do think that developed economies need to rethink some basic issues. One of them is to have a debt limit. It is hard to imagine that in a world growing environment, a small number of countries have unlimited debts and can issue (bonds) even during or outside the crisis. If the government does this, it will occupy the available capital. There is also the question of the central bank buying bonds that I mentioned, which did not exist before the financial crisis in 2009. And this problem is only in developed economies. This has caused a cognitive bias. That is, there is some kind of regulatory and capital bias in the world, which is not good for developing countries. "

Therefore, Georgieva’s policy needs to be targeted, and Malpas agrees. "If you have subsidies, be targeted, because there is so much fiscal space and availability in both developed economies and developing countries. It is impossible to subsidize everyone, because it will soon run out of money. " Malpas said.

From October 10 to October 16, the 2022 annual meeting of IMF and World Bank was held offline at the headquarters of the two institutions in Washington, D.C.. On October 11th, the IMF will release the latest World Economic Outlook Report and Global Financial Stability Report. Georgieva said on the 6th that the IMF would once again cut its global economic growth forecast for next year.

(Author: Xiang Xiufang Editor: Hejia)