Davos: IMF warns global economy faces ‘biggest test’ since World War II


As the first World Economic Forum to be held in person since 2020 opened in Davos, Switzerland on Monday, the International Monetary Fund said the economy faced “perhaps its biggest test since World War II. world”.

“We face a potential confluence of calamities,” IMF Managing Director Kristalina Georgieva said in a statement.

She warned that Russia’s invasion of Ukraine had “worsened” the effects of the Covid-19 pandemic, weighing on economic recovery and stoking inflation as the cost of food and fuel rose.

And then there is climate change.

The head of the International Energy Agency has urged countries to make the right investment choices in response to fossil fuel shortages triggered by Russia’s attack on Ukraine.

“Some may well use Russia’s invasion of Ukraine as an excuse for…a new wave of fossil fuel investment,” IEA chief Fatih Birol said during a briefing. a discussion in Davos. “This will forever close the door to achieving our climate goals.”

The scale of the economic challenge was underlined by a new report from the OECD on Monday, showing that the combined GDP of the G7 countries fell by 0.1% in the first quarter of the year, compared to the three-month period. previous month.

“We cannot solve the problems if we focus on just one of the problems,” said German Economy Minister Robert Habeck. “If none of these issues are addressed, I fear we will be in for a global recession – with huge implications, not just for the climate, for climate protection, but for global stability.”

To limit economic stress, the IMF is calling on government officials and business leaders to meet in Davos to discuss reducing trade barriers.

But as countries struggle with growing dismay over the cost of living crisis in their country, some are heading in the opposite direction, putting in place restrictions on trade in food and agricultural products that can exacerbate shortages and driving up prices globally.

Earlier this month, India’s decision to ban the export of wheat pushed up the price of grain, even though it is a relatively small exporter. Indonesia banned most palm oil exports in April to protect domestic supplies, but will lift the ban this week.
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Speaking during a visit to Tokyo, President Joe Biden said on Monday that a recession was not inevitable and he reiterated that the White House was considering scrapping some Trump-era tariffs on Chinese goods, which, according to Treasury Secretary Janet Yellen, does more harm than good for American consumers and businesses.

Jason Furman, who was formerly President Barack Obama’s top economic adviser, told CNN Business that the United States “is in the least bad shape of any economy in the world.” Consumers are worried about inflation, but they still have plenty of savings and spending remains strong.

But he thinks the risk of recession increases in 2023, as the Federal Reserve raises interest rates to curb inflation.

“I am more worried about the risks of recession in a year and more,” he said on the sidelines of the Davos forum. “I think the Fed should try a soft landing. I don’t know if it will succeed.”

Meanwhile, China could see its economy shrink this quarter due to the impact of Covid-19 shutdowns in Shanghai, Beijing and dozens of other cities, and the fallout from a real estate crisis. The country’s central bank on Friday made the largest ever cut in a key interest rate after housing sales collapsed.

Zhu Ning, a professor at Shanghai’s Higher Institute of Finance, said he believed authorities still had plenty of options to tackle the series of challenges facing the world’s second-largest economy.

“China still has a lot of room to maneuver if it wants – to lower interest rates, to give monetary stimulus to the economy,” he said.

— Anna Cooban, Michelle Toh, Mark Thompson, Allie Malloy and Inke Kappelle contributed to this article.


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