December 2, 2022

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IMF and WB warn of risk of deepening recession

World Bank Group President David Malpass and International Monetary Fund (IMF) Managing Director Kristalina Georgieva warned in Washington on Monday of the combined effects of economic activity and rising inflation and the high risk of a global recession amid the effects of war. Ukraine.

Speaking at the opening ceremony of the annual conference of the two international organizations, titled “Facing Multiple Crises in a Turbulent Environment”, Georgieva underlined the importance of these gatherings. – Faced with three years, in the last three years, “we have experienced unimaginable events with terrible consequences”.

He noted that the risk of recession has increased dramatically, saying that one-third of the world’s economies will experience at least two consecutive quarters of contraction this year and next.

Ms Georgieva warned of the effects of a global recession, saying the total amount wiped out by this recession in the global economy by 2026 would be $4 trillion – or the equivalent of Germany’s GDP. In the smoke.

He explains that the slowdown is a result of the effects of Covid-19 on supply chains, the war in Ukraine, rising prices of basic commodities including food, and high and persistent inflation.

The managing director of the International Monetary Fund noted the slowdown of the three major global economic powers. First in the Eurozone, due to the explosion in gas prices, in China, due to the disruption caused by the pandemic and the instability of the real estate sector, and finally in the United States, despite its very dynamic labor market. , its economic activities see running on steam due to the increase in interest rates, he explained.

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“We are witnessing a profound shift from a more predictable world, with low inflation and low interest rates, to a more volatile and fragile world, with consequences that we must face this week in Washington,” the head of the IMF said.

“The situation is difficult for everyone and especially for developing countries,” he added.

For his part, Malpass noted that many economies are seeing their activity slow. This is especially the case in Europe, noted the head of the World Bank, who did not rule out the risk of a recession starting next year.

Currency depreciation is another major problem, he said, adding to the debt levels of developing countries.

Rising interest rates and inflation are especially hard on developing countries, Malpass added, recalling millions falling into poverty.

Developed countries absorb most of the capital, further complicating the situation in poor countries, the World Bank president said, noting other issues related to education and energy. , lack of fertilizers and poor harvests.

Regarding the recommendations, the President of the World Bank Group opined that it is necessary to send more resources to developing countries and said that it is necessary to increase production and growth, “first the more well-off developed countries.

The World Bank Group president also highlighted the need to help countries adopt better policies, with fewer subsidies for higher income thresholds and more support and inclusive financing for small enterprises for women and men.

He recommends a “country-by-case, case-by-case approach to having the most effective programs.”

“We must move quickly to create financial space for climate issues in many developing countries,” he added.

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For his part, the IMF’s managing director emphasized the importance of controlling inflation, supporting households in a precise and targeted manner, and balancing monetary and budgetary policy.

“It’s about winning on two fronts: stabilizing the economy and transforming it for the future,” he said.

Both leaders outlined the importance of allocating more resources to tackle the food crisis and ensuring more funding for developing and developing countries to address and mitigate the effects of climate change.

“These meetings provide an opportunity to think about ways to work together to carry out necessary reforms and redirect private financing to address climate change,” he stressed in this regard.

Other actors should also participate in efforts to help developing countries cope with climate change, Malpass said, starting with the need to alleviate the debt of poorer countries facing the catastrophic effects of climate change.

“These meetings are an unprecedented opportunity to demonstrate that we can cooperate and shape policies that work together,” the IMF’s managing director concluded.

Held from October 10-16, the IMF-WB meetings provide a platform for policymakers, central bank governors, financial experts, economists, parliamentarians and NGOs to discuss a range of key issues, including inclusive growth and energy and education.