Fund Is Likely To Make A ‘Significant’ Downgrade For Global Growth
June 8, 2022—Less than two months after adjusting its economic forecast downward due to global fragmentation, the International Monetary Fund is poised to make another reduction when it releases its forecast next month.
Moreover, the fund expects to make a “significant” downgrade for global growth, Gita Gopinath, IMF’s first deputy managing director, said today. Her comments came during a conversation with the Financial Times’s Martin Wolf at that paper’s Global Boardroom conference.
‘Very Risky’ Times
In contrast to an analysis by the World Bank, the IMF is not envisioning 1970s-like stagflation as a central possibility. However, negative growth rates in Europe is possible, she said, as well as possible default on sovereign debt for some of the world’s weakest economies.
In its April forecast, the IMF revised its projections downward from 6.1 percent to 3.6 percent.
“These are times that are very risky for financial markets,” Gopinath said.
Rising interest rates by central banks, supply chain disruptions, and rampant inflation are among the factors raising concerns.
Consumer Demand Pressing Prices Higher
What’s also noteworthy is that more and more analysts are linking inflation back to fiscal and monetary policies that stimulate the economy. That’s a change from what seemed like a coordinated strategy to ignore the warning signs.
As prices rose throughout 2021, many policymakers put the blame on supply shortages. Central banks refused to raise rates and continued their massive stimulus programs. European Central Bank (ECB) maintained rates at 0.00%, 0.25% and -0.40%. ECB President Christine Lagarde said the inflation issues would “fade away.” Federal Reserve Board Chair Jerome Powell admitted that the Fed skewed the risk toward inflation while the Fed kept rates near zero through March 2022. And, as the U.S. debt rose to new heights, Treasury Secretary Janet Yellen insisted that “debt doesn’t matter.”
Meanwhile, global debt rose to $188 trillion. Government stimulus programs fueled expansions in the housing sector, stock market, and cryptocurrency.
Government Stimulus Fuels Demand
Now, increasingly, economic analysts, including JP Morgan‘s Jamie Dimon, are pointing to government stimulus as a cause. The IMF’s Gopinath affirmed that thinking.
“There is an absolute a demand component to the inflation,” she said.
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