Be cool, composed & careful — IMF chief tells countries to take actions that do not derail global economy

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The International Monetary Fund’s (IMF) managing director Kristalina Georgieva said businesses, economies and countries should be careful about taking actions that can derail the global economy. “Anyting that distorts energy prices, pushes them up, then this beautiful trend of inflation going down and growth in positive territory, can be disturbed. So the most important thing for everybody is to be cool, composed and careful,'” she told The Economist, as part of the Milken Institute’s global conference.

The IMF is also sticking to its baseline scenario of the US Fed cutting interest rates this year despite some fears on the contrary, which is a US rate hike to cool inflation. “Let’s remember this, inflation is not just in the hands of the Fed. It is also in the hands of American businesses repairing supply chains that play the role of bringing inflation down. Could that be derailed? It could, but as we say in our baseline scenario we would see inflation going down to target this year and the Fed starting to cut,” she said.

The IMF chief later also spoke about China, saying it is “facing a fork in the road”, with its aging population and its strategy of massive exports in a more fragmented world not working any more. She said the IMF has advised China to open up its economy, tackle the real estate problem more forcefully and make it disappear and orient the economy towards domestic consumption.

She added the real estate problem has eased but it’s still there, forcing people to save more rather than spend . “That is very bad as the Chinese people think of property as their pension and when property goes down they don’t spend as they worry about the future. Create confidence in people so that they don’t have to save so much and spend so little. And confidence is a hard thing to gain,” she said, adding it’s hard for China to switch from the known to the unknown but the IMF will continue with its engagement.

Kristalina Georgieva also told The Economist that the ongoing decade is likely to witness “tepid” growth with global growth seen around 3% against the pre- pandemic 3.8% . Some economies with poor fundamentals could perpetually witness turbulence , while some will stagnate as still others could transform with the help of technology, AI and capital, she said.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow