Ahead of a meeting between global finance heads, leaders of the World Bank and the International Monetary Fund warned of a growing risk of an economic slowdown next year as central banks around the world work to fight stubbornly high inflation—highlighting the uphill battle policymakers are facing to fight spiking prices without plunging the world into a recession.
The joint summit will convene finance ministers and central bank governors from the Group of 20 (G20) economies beginning Wednesday and comes a week after the United Nations urged advanced economies to ease interest rate hikes.
“The world is headed toward a global recession and prolonged stagnation unless we quickly change the current policy course of monetary and fiscal tightening in advanced economies,” the United Nations warned in a report last week, adding that “alarm bells are ringing most for developing countries,” which are edging closer to debt default.
Fed officials, however, have remained steadfast on their commitment to fight inflation by raising rates—even if it risks a recession.
“It is bad to have inflation, but we will survive as humanity,” Georgieva said Monday. “It’s very bad to have recessions—it would affect people horribly, especially poor people, but we can survive it.”
An increase in US interest rates of one percentage point reduces real GDP by 0.5% in advanced economies and by 0.8% in emerging economies after three years, a recent study estimates. The Fed has raised rates by three percentage points this year.
U.N. Calls On Fed, Other Central Banks to Halt Interest-Rate Increases (WSJ)