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‘Diverging dangerously’: IMF chief warns of threat to global economic recovery

The head of the 190-nation International Monetary Fund says prospects for global growth have brightened since January, helped by a $US1.9 trillion ($2.5 trillion) US rescue package. But she warns that uneven progress in fighting the pandemic could jeopardise the economic gains.

IMF Managing Director Kristalina Georgieva said that when the IMF releases its updated economic forecast next week, it will show the global economy growing at a faster pace than the 5.5 per cent gain it projected at the start of the year.

IMF chief Kristalina Georgieva says the global economy now in a multi-speed recovery increasingly powered by two engines - the United States and China - while other countries fall behind.

IMF chief Kristalina Georgieva says the global economy now in a multi-speed recovery increasingly powered by two engines – the United States and China – while other countries fall behind.Credit:Bloomberg

In remarks hosted by the Council on Foreign Relations, she said that the $US1.9 trillion support package that President Joe Biden signed into law on March 11 along with rising confidence from increased vaccinations in many advanced economies were primary reasons for the forecast upgrade.

Georgieva said that governments around the globe had taken extraordinary actions over the past year including providing a combined $US16 trillion in support and a massive injection of liquidity into the financial sector by the world’s central banks. Without this prompt response, Georgieva said the last year’s downturn would have been three times worse.

But she said economic prospects are “diverging dangerously” with the global economy now in a multi-speed recovery increasingly powered by two engines — the United States and China, the world’s two biggest economies, while other countries fall behind.

Georgieva said the world faced “extremely high uncertainty” with so much depending on the path of the pandemic with new strains of the virus now holding back growth prospects, especially in Europe and Latin America.

“Major central banks have to carefully communicate their policy plans to prevent excess financial volatility at home and abroad.”

IMF chief Kristalina Georgieva

Private economists are forecasting that the US economy could grow by 6 per cent to 7 per cent this year, which would be the best performance since 1984. But Georgieva said strong growth in the United States could trigger a rapid rise in interest which could trigger significant capital outflows from emerging market and developing economies.

She said that emerging market and low-income countries already have limited firepower to fight the crisis and are highly exposed to the declines in tourism and other sectors hit hard by the pandemic.

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