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Top IMF Official Warns Global Growth Expected to Be Under 3 Percent in 2023

Global economic growth will remain below 3 percent in 2023 and for the next five years, according to Kristalina Georgieva, the managing director at the International Monetary Fund (IMF).

With elevated price inflation persisting throughout the world economy and to achieve the goal of restoring price stability, Georgieva purported that central banks would need to keep raising interest rates and leaving them higher for longer, which will weigh on growth prospects.

“And what is more concerning is that it would remain around 3 percent for the next five years,” she said in a conversation with World Bank Group President David Malpass at a joint IMF-World Bank event on April 10.

“This does not give us high hope for meeting the aspiration of people, especially poor people around the world and poor people in poor countries.”

David Malpass
World Bank President David Malpass attends the Reuters NEXT Newsmaker event in New York on Dec. 1, 2022. (Andrew Kelly/Reuters)

As the world wrestles with one crisis after another, Georgieva believes that growth prospects and productivity levels will remain low without “the longer-term agenda structural reforms that are paramount.”

Malpass touched upon monetary policy impacting advanced economies and emerging markets.

Global investors anticipated that central banks’ monetary policies worldwide would be “low for long,” resulting in the misallocation of capital, he explained.

Across the international marketplace, investors were making their decisions based on the notion that central banks would leave interest rates at zero percent for an extended period.

Productive Uses of Capital

Malpass noted that this expectation caused inefficient uses of capital in the global economy, which has weighed on economic growth.

According to Malpass, the challenge will be trying to resuscitate productive uses of capital as central banks raise interest rates as part of their inflation-fighting tightening campaigns.

At the same time, these efforts have led to losses for financial institutions that “had a duration mismatch,” alluding to the failure of Silicon Valley Bank.

“So, there’s losses being allocated by the world system,” he said.

“If you just lower the interest rates back down, it won’t solve the problem,” Malpass added. “What that means is that people will suffer from inflation. The dollar weakens, yet the inflation rate goes back up, and that hurts the poor the most.”

“I think there has to be a goal of finding a low-inflation environment and dollar stability for the future.”

Dollar-Swap Arrangements

Central banks slashed interest rates to zero percent in response to the coronavirus pandemic.

The Federal Reserve led the charge, announcing a March 2020 emergency move that would reduce the benchmark fed funds rate (FFR) to zero, and initiated an unlimited quantitative easing (QE) program.

This raised its balance sheet to nearly $9 trillion and consisted of buying Treasury securities, corporate bonds, and mortgage-backed securities. These efforts aimed to cushion the economic blows of the COVID-19 public health crisis.

The Fed and many of its counterparts, including the Bank of Canada (BoC) and the Bank of England (BoE), also coordinated a mechanism to bolster greenback liquidity worldwide through dollar-swap arrangements.

It was not until March 2022 that the Fed raised the policy rate by 25 basis points. Since then, the institution has increased the FFR by 475 basis points.

Crime, Inflation, and Fragility

Malpass thinks it is “gravely concerning” that there is a divergence between low and high-income populations and nations as people with lower incomes are growing at a faster pace than individuals with higher incomes.

In addition to widening inequality, the outgoing World Bank head believes this will lead to more countries slipping into a state of “fragility,” meaning more crime and higher prices.

“One of the concerns with crime and high prices now is that high prices are being applied to food and fertilizer,” he said.

“A concern for the poorest around the world is the farmers are not able to plant, or if they don’t get fertilizer, they won’t plant for the crop cycle because they know that their yields will be too low.”

Food Inflation Persists

The United Nations Food and Agriculture Organization (FAO) reported on April 7 that its Food Price Index has declined for 12 consecutive months.

In March, the FAO’s food-price index tumbled 2.1 percent, the lowest level since July 2021, and is 20 percent lower than its peak in March 2022.

Despite the long-running slide, global food inflation pressures persist, says Maximo Torero, chief economist at the FAO.

“While prices dropped at the global level, they are still very high and continue to increase in domestic markets, posing additional challenges to food security. This is particularly so in net food-importing developing countries,” said Torero.

According to the Bureau of Labor Statistics (BLS), the U.S. annual food inflation rate slowed to 9.5 percent in February, down from 10.1 percent. This represented the sixth straight monthly drop. However, supermarket prices were still above 10 percent.

In its latest Food Price Outlook, the U.S. Department of Agriculture’s (USDA) Economic Research Service (ERS) forecast that food at home prices will range between 5.3 percent and 10.5 percent this year, higher than the 20-year historical average of 2.5 percent.

The IMF and World Bank will be hosting the 2023 Spring Meetings in Washington, from April 10 to April 16.

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