The global economic outlook may not be as bad as feared, but it is still not good enough, according to the Managing Director of the International Monetary Fund (IMF), Kristalina Georgieva. Speaking at a panel at the World Economic Forum in Davos, she urged caution, saying that while headline inflation was heading down and China’s reopening is expected to boost global growth, there are still ongoing risks that need to be addressed.
One of the positive changes that has occurred is the strength of labor markets, which has translated into consumers spending and keeping the economy up. However, Georgieva also highlighted that China’s growth could result in higher oil and gas prices and the ongoing conflict in Ukraine could harm global confidence, particularly in Europe.
She also noted that global growth of 2.7% is “not fabulous.” Her biggest concern is that labor markets could lose some of their current tightness, with interest rates yet to significantly bite. This could lead to unemployment going up at a time when fiscal space in governments is very tight, and there isn’t much they can do to help people.
Georgieva called on policymakers and business leaders to be careful not to shift from being too pessimistic to being too optimistic and urged them to stay in the middle of realism. She also called on them to fight global economic fragmentation by diversifying supply chains to strengthen them rationally and collaboratively, which could cost 0.2% of GDP. If done in an uncoordinated manner, it could result in a 7% loss of GDP, equaling $7 trillion.
