DAVOS, Switzerland
The year ahead will be “very tough” for fiscal policy — especially for countries holding elections — the IMF chief told AFP before departing for the World Economic Forum in Davos, Switzerland.
“This is going to be a very
tough year, because fiscal policy has to rebuild buffers and deal with the debt
that was accumulated in many countries,” International Monetary Fund Managing
Director Kristalina Georgieva said in an interview in Washington.
“About 80 countries are going
to have elections, and we know what happens with pressure on spending during
election cycles,” the Bulgaria-born IMF chief continued.
Billions of people in dozens
of countries around the world are due to go to the polls this year, from India
to the United States, putting pressure on governments to either raise spending
or cut taxes to win popular support.
The IMF is due to publish
updated economic forecasts later this month which will show the global economy
is broadly “on track” to meet its previous forecasts, according to Georgieva.
The global economy is “poised
for a soft landing,” she said, adding: “Monetary policy is doing a good job,
inflation is going down, but the job is not quite done.”
“So we are in this trickiest
place of not easing too fast or too slow,” she said.
In the US, the Federal Reserve
recently held interest rates at a 22-year high and penciled in as many as three
interest rate cuts this year, while the European Central Bank has also stopped
hiking interest rates.
These steps have led traders
to become more optimistic about the possibility of a loosening of monetary
policy in the months ahead, which can act to boost economic growth.
The concern at the IMF,
Georgieva said, is that governments around the world spend big this year and
undermine the progress made in the fight against high inflation.
“If monetary policy tightens
and fiscal policy expands, going against the objective of bringing inflation
down, we might be for a longer ride,” she added.
The global economy faces a
year of subdued growth prospects and uncertainty stemming from geopolitical
strife, tight financing conditions and the disruptive impact of artificial
intelligence, a survey of top economists released on Monday (15 January) found.
Conducted each year ahead of
the WEF annual meeting, the survey of 60-plus chief economists drawn globally
from the private and public sectors attempts to sketch priorities for
policymakers and business leaders.
Some 56% of those surveyed
expect overall global economic conditions to weaken this year, with a high
degree of regional divergence. While majorities saw moderate or stronger growth
in China and the United States, there was broad consensus that Europe would
muster only weak or very weak growth.
The outlook for South Asia and
East Asia and Pacific was more positive, with very high majorities expecting at
least moderate growth in 2024.
Reflecting commentary from the
world’s top central banks suggesting that interest rates have peaked, a full
70% of those surveyed nonetheless expected financial conditions to loosen as
inflation ebbs and current tightness in labour markets eases.
Artificial intelligence was
seen making an unequal mark on the world economy: while 94% expected AI to
significantly boost productivity in high-income economies over the next five
years, just 53% predicted the same for low-income economies.
Separately, the WEF released a
study on the “quality” of economic growth across 107 economies that concluded
that most countries are growing in ways that are neither environmentally
sustainable nor socially inclusive.
“Reigniting global growth will
be essential to addressing key challenges, yet growth alone is not enough,”
said Saadia Zahidi, Managing Director, World Economic Forum.
The WEF said it was launching
a campaign to define a new approach to growth and help policymakers balance it
with social, environmental and other priorities.
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