By Bhawna
According to IMF Chief Kristaline Georgieva, inflation is like “a runaway train”. She has said that policymakers to keep fighting against rising prices even if it means more pain at a time of economic turmoil. She said that the world economy has been struck by many disasters like the coronavirus pandemic, Russia’s invasion of Ukraine, and a re-coming of inflation. Taking into account the rising prices should be of prime importance. We have to restore price stability or else growth cannot happen. We cannot see inflation becoming a runaway train. It is bad for economic growth and all people.
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The Federal Reserve and other central banks are raising interest rates to combat inflation. Inflations quickened in September. This was because of the cost of housing and other costs increasing pressure on Americans.
Georgieva said that the higher borrowing costs will squeeze economic growth. She has asked policymakers to show a check on money spending. She said that when monetary policy puts a foot on the brakes, fiscal policy should have a foot on the accelerator.
Many governments are already heavily indebted due to fighting with the pandemic. So, they should focus on helping the most vulnerable people when there is a time of food shortage and high energy costs. They should not focus on spending on programs. According to her, policy measures should be well-targeted.
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Georgieva has talked about inflation at a time when some economists say that central banks will increase interest rate hikes. This will cause unnecessary economic pain. She also said that the fragmentation of the world economy into a competition between political blocs can cause inflation to exist. If geopolitical conflicts cause companies to move their supply chains- like out of China, then it can lead to production becoming less efficient and more expensive. And central bank rate hikes cannot do much about it. If we lose the advantages of an integrated global economy, we all would be poorer.
IMF Chief said that she can see hope for the global economy. In 2024, she said the world economy will be on the upside. U.S. inflation has slowed down in recent months.
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The comments of Georgieva are optimistic. Earlier this month, she said that the global economy was facing a tough year, even tougher than the previous year. In October, she said that the global economy is like a ship in choppy waters. This downgrade in October led to IMF’s expectations for global growth in 2023 to 2% less. And this is a global recession. She said that 2023 will feel like a recession to people across the globe even if economic growth is positive.
The economic growth of the world is going through a turning point with falling inflation. This is good but the balance of the risks is slanted to the downside. Inflation can remain higher than expected. Russia’s war in Ukraine could escalate. It can cause fragmentation of the global economy. The IMF expects that global inflation would decline to 6.6 percent in 2023. This was 8.8 percent in 2022. China’s reopening is of help.
Inflation will gradually decline as commodity prices settle. Also, there would be tighter monetary and fiscal policies. The war in Ukraine and climate disasters can worsen the situation. Tighter global or domestic financial conditions would lead to high borrowing costs. Delays in reforms can have an effect on regional prospects and government finances.
Lebanon is suffering from its worst economic crisis and hyperinflation. It was 122 percent in December. Several Arab countries are coming up with medium-term fiscal frameworks. They can mitigate risks. They can help the government to maintain essential spending, stabilize debt, and build investor trust.
Georgieva said that monetary tightening would be this year but it would not continue in 2024. The markets are becoming more upbeat because the US economy is avoiding recession. China is also re-opening and Chinese consumers are also spending money they saved during the lockdown.
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She praised Gulf Arab oil producers for making fiscal reforms like diversifying revenue sources by introducing new taxes.
Inflation, increasing interest rates, rising food and energy prices, and climate change, and slower growth and recession are global concerns today. Global central banks have tightened monetary policy as a result of rising prices. Georgieva has said that global inflation is going down in many countries. But still, global inflation is under a lot of pressure. There is should be resilience at all levels. The good things are that US consumer spending has increased and China has re-opened. Inflation is trimming down.
She said that 2023 would be a tough year. The resilience shown by labor markets is worth appreciating. The world’s biggest economy, the US, will see only a mild recession if it the situation gets worse.