Bloomberg News reports that the chief economist of the International Monetary Fund has said that the central banks’ efforts to clamp down inflation without a recession seem tough; however, it is not impossible.
As stated by Pierre-Oliver Gourinchas on Wednesday in a Twitter Spaces event that the path is extremely narrow, and it is gradually getting narrower. It will become increasingly tough for nations like the United Kingdom, United States, and the Euro areas. However, it is not impossible.
The Washington-based crisis lender on Tuesday curbed its outlook for global growth for the current year and the next, sending warning signs that the global economy might sooner be on the verge of an outright recession. The global economic expansion will likely slow down to 3.2% in the current year, which is lower than what the fund predicted for 3.6% in April.
It took the biggest hit for US expansion regarding the same projection, with the International Monetary Fund shredding it by 1.4% relative to the estimate in April to 2.3%. Federal Reserve Chair Jerome Powell is expected to deliver on Wednesday, which will be the largest back-to-back rate increase in decades to combat the hottest inflation in four decades, causing the financial markets to go haywire and instilling fear among investors that the Fed’s move could trigger a recession.
Debt Related Issues
With the debt of developing and emerging economies at its peak, the escalation in borrowing costs and depreciation of exchange rate globally is causing dollar-denominated debt to be serviced more difficult.
Bloomberg News reports that Gourinchas also said that a significant increase, especially in low-income countries, is showing a significant increase and are in debt distress. The chief economist also said that quite several countries must need to restructure their debt issues, while some of them have already started working on it. This number will increase in the future, and it is crucial to boost that process.
Due to the absence of clarity, transparency, and coordination, the Common Framework has been disturbed. The Common Framework is a plan that a group of 20 leading economies has worked out in late 2020 to work and restructure debt for countries with a chance of defaulting. The chief economist also said the process needs to be further facilitated to make it work better.
