Natural gas outages could trigger recession in Europe: Kristalina Georgieva

The world economic outlook remains extremely uncertain, the head of the International Monetary Fund said on Wednesday, warning that further disruption to Europe’s supply of natural gas could plunge many economies into recession.

In a blog posted ahead of this week’s meeting of finance officials from the Group of 20 major economies, IMF Managing Director, Kristalina Georgievasaid Russia’s war in Ukraine had significantly darkened the economic outlook and the IMF was on track to cut its outlook for 2022 and 2023.

Georgieva told Reuters last week that the fund would cut its previous forecast of 3.6% growth in 2022 for the third time this year and said she could not rule out a recession next year. The new figures are due out later this month, after a downward revision of nearly a full percentage point in April.

Georgieva said the war is causing a growing human tragedy, as commodity-related shocks are slowing growth and raising prices. pricesexacerbating a cost-of-living crisis that threatens to push an additional 71 million people into extreme poverty.

“Countries must do everything in their power to reduce inflation … because persistently high inflation could sink the recovery and further damage living standards, particularly for the vulnerable,” he said, adding that growing concerns about food and energy supplies also increased the risks of social instability.

to avoid more hunger, malnutrition and migrationRicher countries must provide urgent support to those in need through new bilateral and multilateral funds, in addition to reversing recent restrictions on food exports, Georgieva said.

Most central banks would need to continue to tighten monetary policy, especially in countries where inflation expectations are starting to become unanchored.

Without action, he said, those countries could face a “destructive spiral of wages and prices” that would require more forceful monetary tightening, with even greater damage to growth and jobs.

Monetary authorities should also be prepared to use foreign exchange interventions or capital flow management measures when external shocks are so damaging that they cannot be absorbed by flexible exchange rates alone, Georgieva wrote.

Countries with high levels of debt must reduce dependence on foreign currency loans and cut the Tax expenditure to lessen the burden of increasingly expensive loans.

But he said urgent efforts were also needed to reduce debt, especially in emerging and developing economies with high foreign exchange liabilities, noting that about 30% of emerging market countries and 60% of low-income nations they were now in debt trouble or close to it.