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Wednesday, January 17, 2024

IMF warns of spending spree before global 2024 elections

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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