Daily Management Review

Georgieva Says Growth Downgrades Likely Because Of Emergence Of Omicron Variant


Georgieva Says Growth Downgrades Likely Because Of Emergence Of Omicron Variant
The global economic growth projections made by the International Monetary Fund would likely be reduced due to the emergence of the Omicron variant of the coronavirus, according to IMF Managing Director Kristalina Georgieva.
"A new variant that may spread very rapidly can dent confidence, and in that sense, we are likely to see some downgrades of our October projections for global growth," Georgieva said during the Reuters Next conference.
In October, the International Monetary Fund had predicted that the world economy will grow by 5.9 per cent this year and 4.9 per cent next year, and had then cited the possibility of emergence of new coronavirus variants as a source of increased uncertainty about when the pandemic would come to an end.
Strong inflation in the United States should be handled by policymakers, according to Georgieva, but such high price pressures are not being seen uniformly throughout the world which has allowed other countries to adjust policy at their own speed.
The IMF's chief said that the US economy's growth has a beneficial spillover impact throughout the globe, even if it implies the US Federal Reserve will begin to wind down its accommodating policy stance in the coming months, as most analysts now predict.
"We do believe that the path to policy rate increases may be walked faster," she said, pointing to 2022 as a likely target.
Tariff reductions, Georgieva said, are a a "useful tool" for controlling inflation, and she praised US Trade Representative Katherine Tai's efforts on tariff reductions through an exclusion procedure.
"It is not a silver bullet. There has to be action on all these fronts, so we can see the issue of inflation being contained."
In order to resolve the current burden of debt in developing economies, greater and aggressive debt restructuring should be undertaken so that the burden does not turn out to be a long term concern for the countries, Georgieva said.
"The reality is that 2022 is going to be a very pressing year in terms of dealing with debt," she said, adding that sovereign debt has risen 18% during the COVID pandemic and it will take decades to go to pre-pandemic levels unless there is a "much more thoughtful and aggressive" policy.
"So far, interest rates are relatively low, this is not so dramatic. Going forward ... that may not be the case."
The actions of the fund undertaken to address the issue of climate change, which were criticised by some, were defended by Georgieva. According to her, these actions are a crucial part to attain macroeconomic stability.
"I don't think there are many people today who could see climate change as not being macro critical for stability, growth and employment. It is. And the reason the IMF is engaged on this topic is because for our members, it matters."