IMF Chief Warns World Heading Toward ‘Dangerous New Normal’

The head of the International Monetary Fund (IMF) has warned that the world is heading toward a “dangerous new normal.”

Kristalina Georgieva, managing director of the IMF, warns that the world is facing the risk of a recession, with the global economy experiencing a “fundamental shift.”

Georgieva made the comments during a speech at Georgetown University in Washington on Thursday.

In just three years, the world has lived through “shock, after shock, after shock,” Georgieva said.

The world had to deal with the COVID-19 pandemic, the Russian invasion of Ukraine, and “climate disasters on all continents,” she claimed.

She said that such shocks have caused “immeasurable harm” to people’s lives.

The combined effect has been a surge in the prices of goods, especially energy and foods, creating a cost-of-living crisis, she said.

The world is seeing a “fundamental shift” in the global economy, moving away from a world of relative predictability— which had a rules-based framework for international economic cooperation, low inflation, and low-interest rates—to a world of more fragility, greater uncertainty, geopolitical confrontations, higher economic volatility, and more frequent devastating natural disasters, she said.

To prevent this period of heightened fragility from becoming a “dangerous new normal,” the world must focus on stabilizing the global economy, revitalizing cooperation, and transforming the economy to build resilience against any future shocks, Georgieva said.

Uncertainty remains “extremely high” in the context of the pandemic and Russia’s war in Ukraine.

Georgieva raised the possibility of “even more” economic shocks, pointing out that financial stability risks are rising.

The IMF head wants policymakers to focus on bringing down inflation and put in place a responsible fiscal policy that protects the financially vulnerable.

“The deeper causes of the world’s fragility can only be addressed by countries working together,” she said.

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In her speech, Georgieva pointed out that the IMF had projected a strong recovery after the COVID-19 pandemic, with the agency’s economists thinking that inflation would quickly subside.

“But this is not what happened,” she said.

“Multiple shocks, among them a senseless war, changed the economic picture completely.

“Far from being transitory, inflation has become more persistent.

“We have downgraded our growth projections already three times, to only 3.2 percent for 2022 and 2.9 percent for 2023.

“And as you will see in our updated World Economic Outlook next week, we will downgrade growth for next year.”

All of the world’s major economies are “slowing down,” including the United States, China, and the eurozone, she said.

This ends up affecting developing and emerging nations as well, since they will be faced with reduced export demand as well as high energy and food prices.

The IMF believes the risks of recession are rising, with nations accounting for a third of the world economy projected to see “at least” two consecutive quarters of economic declines in 2022 or 2023.

The United States has already had two consecutive negative quarters in 2022.

Even if there is positive growth, it will “feel like a recession” due to rising prices and shrinking incomes, Georgieva said.

The IMF projects roughly $4 trillion in global output loss between now and 2026.

Billionaire investor Stanley Druckenmiller had recently warned that the potential economic downturn in the United States could be worse than an “average garden variety” recession.

At an investor summit in late September, Druckenmiller said it will be impossible for the U.S. economy to experience a “soft landing.”

Instead, he is expecting the economy to do a “hard landing” by the end of 2023 due to the Federal Reserve’s aggressive rate hikes in response to rising inflation.

“We are in deep trouble,” he said.

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By Nick R. Hamilton

Nick has a broad background in journalism, business, and technology. He covers news on cryptocurrency, traditional assets, and economic markets.

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