Global economy lacks dynamism: IMF gives the all-clear for a global recession

The global economy lacks dynamism
IMF gives the all-clear for global recession

According to German government circles, the danger of a global recession has largely been averted. However, the global economic outlook from the International Monetary Fund is not particularly optimistic – especially not for Germany.

According to information from the Federal Ministry of Finance, the International Monetary Fund (IMF) sees no danger of a global recession in its new global economic outlook, but overall the outlook remains “clouded”. “The forecast shows that, on the one hand, the danger of a global recession has largely been averted and that the global economy has shown resilience in the face of crises and geopolitical difficulties. Downside risks have recently reduced overall due to a decline in inflation, but on the other hand, the outlook remains of course still clouded,” said a high-ranking Finance Ministry official in Berlin, referring to the report that is to be published later in Washington.

The global economy is growing, but it is not growing dynamically. “In other places, like here, it doesn’t grow at all,” he emphasized. We can also see that inflation will remain elevated for longer than expected just a few months ago due to new shocks such as those we have just experienced and “that a continued tight monetary policy may remain necessary for a certain period of time.” In the medium term, global growth prospects are also “unsatisfactorily low”.

Germany agrees with current IMF analyzes that structural reforms are essential to improve the growth trend by increasing productivity. “After years of crisis-fighting policy, we are calling for a renewed focus on structural reforms, both internationally and nationally, here nationally, of course, with the focus on economic transition,” emphasized the official. Germany proposes a broad supply policy agenda for investment, innovation and growth. In this way, Germany must “maintain a financial policy that is sustainable in the medium and long term.” The IMF also supports this goal of the federal government.

The meetings in Washington would be overshadowed by the Russian war of aggression against Ukraine and the crisis in the Middle East, “now of course exacerbated by the events of the past few days.” These would also play a role there. In this difficult situation, Germany expressly acknowledges Israel’s right to self-defense and condemns Iran’s attack on Israel in the strongest possible terms, but at the same time efforts must be made to prevent an escalation.

IMF discusses its own financial base

According to the information, the finance ministers and central bank governors of the 20 leading industrialized and emerging countries (G20) want to discuss the topic of climate finance on Wednesday evening and the international financial architecture on Thursday morning. The focus here is on reforming and strengthening the multilateral development banks and also on sustainably stabilizing capital flows to developing and emerging countries. The point is that non-traditional donors also increasingly live up to their responsibility and that the private sector and domestic financing also need to be mobilized.

At the IMF, the role of the institution itself should also be discussed. The IMF’s financial base is “more than sufficient to meet the current and future needs of the membership,” the official emphasized. “We are committed to limiting the IMF to its core mandate, namely maintaining global financial stability.” This will also be made clear in the on-site meetings. Federal Finance Minister Christian Lindner and Bundesbank President Joachim Nagel, who will both take part in the meetings in Washington, had previously called for a focus on its core mandate to mark the 80th anniversary of the monetary fund.

“Over time, the IMF has always managed to emerge stronger from crises. However, external circumstances have rarely been more challenging than today,” both wrote in a guest commentary in the Handelsblatt. “An IMF that focuses on its core mandate can best strengthen the global economic and monetary system.”

The IMF’s aid to countries with struggling finances “could not replace a long-term, stability-promoting economic policy,” and financing a development policy agenda was “not the IMF’s original task and should rather be left to institutions such as the World Bank,” they wrote, among others. In this context, efforts to use the so-called special drawing rights for development financing “should be viewed with skepticism.”

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