IMF chief cautions central banks to remain 'vigilant' as inflation remains high

There are some positive results with the inflation slowly showing signs of dropping but the IMF projects that prices will remain high in most countries all the way through next year.

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The global economy may grapple with inflation for some time before conditions start to ease due to the “exceptionally strong” consumer and labor market, the managing director of the International Monetary Fund (IMF) said Wednesday.

Speaking to Al Arabiya, Kristalina Georgieva said she expects the US to avoid a recession with inflation slowing and coming under control due to the Federal Bank’s current policy of tightening interest rates.

But Georgieva did caution against inflation in Europe, parts of Asia and the MENA region, saying the rise in prices may flow into 2024 before coming down.

Europe

“In comparison to the US, the European economy faces more headwind because it is much more dependent than the US on the import of energy,” she said.

“The Eurozone is behind the US in terms of inflation going down to target. We believe that it would take all the way to 2024 for this to happen, but the trend is going in right direction.”

IMF Managin Director Kristalina Georgieva spoke to Al Arabiya's senior presenter Lara Habib on Thursday, October 5, 2023.
IMF Managin Director Kristalina Georgieva spoke to Al Arabiya's senior presenter Lara Habib on Thursday, October 5, 2023.

The IMF chief also hinted at Europe’s demographic problem where a large chunk of the population is ageing. She suggested that countries in the region implement “thoughtful” labor policies to meet with the rising demand of the labor market.

Asia

The project growth rate for most of Asia is four to five percent below pre-pandemic projections, especially in countries like China struggling with real estate crisis, government debt and restructuring of global supply chains, according to Georgieva.

She expects Beijing’s growth rate to remain somewhere around five percent this year despite the economic hurdles.

Georgieva also expressed concerns regarding China’s medium-term growth prospect, which she said could drop under four percent unless China pursues a structural overhaul. This could include pension and social support reforms by moving more money into the hands of the consumers.

IMF Managin Director Kristalina Georgieva spoke to Al Arabiya's senior presenter Lara Habib on Thursday, October 5, 2023.
IMF Managin Director Kristalina Georgieva spoke to Al Arabiya's senior presenter Lara Habib on Thursday, October 5, 2023.

She painted a rather optimistic picture for India and Indonesia.

“If you look at Indonesia and India, there is very healthy growth, very dynamic growth and also inflation has been brought down before elsewhere. The ASEAN India is a bright spot on a nation’s horizon,” she said.

MENA

Inflation has slowed down in most the MENA region, but oil prices continue to remain high, along with an alarming rise in youth employment.

Georgieva said: “In oil exporting countries, decisions to contain OPEC+ delivery on the old market have consequences and so does the increase in price of oil over the last weeks.”

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“The problems most concerning for MENA are of structural nature. Youth unemployment is very high, 26 percent on average and in some countries 30-35 percent,” she said.

IMF projection: Weak global growth

The IMF’s projection for growth is weak and the institution expects global growth to be hover at around 3 percent over the five years.

“This is almost a percentage point below the average of the previous decade,” Georgieva said.

She also suggested that inflation had thrown “cold water” on consumer and investor confidence leading to a rise in inflation.

There are some positive results with the inflation slowly showing signs of dropping but the IMF projects that prices will remain high in most countries all the way through next year.

“I advise central banks to be vigilant, be data dependent and communicate clearly your intentions to bring more confidence,” she said.

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