Weaker global growth, vaccine protectionism and the spectre of 1970s-style inflation haunting large economies. As the International Monetary Fund prepares for its annual gathering this week, the contrast with the spring could not be more stark.
Back in April, at the Washington-based fund’s last virtual bash, there were sharp upgrades for global growth amid a sense of optimism for the road ahead, led by stronger-than-expected recoveries in the US, UK and other advanced economies. Vaccines would pave the way for the swift unlocking of pandemic restrictions, fuelling a rapid recovery from the worst global recession since the 1930s Great Depression.
Since then, the sprint back to economic health has slowed to a hobble, the head of the IMF, Kristalina Georgieva, warned last week. “We are unable to walk forward properly – it is like walking with stones in our shoes!”
On Tuesday, the IMF is expected to issue a downbeat economic outlook for the rest of the year, as a summer of supply-chain bottlenecks and rising inflationary pressures risks worsening this autumn.
In July, the IMF predicted 6% growth for the global economy in 2021, but Georgieva said last week that this would be scaled down in its updated World Economic Outlook report.
The IMF is expected to warn that low-income nations are still not getting adequate access to Covid vaccines, in a development likely to cost the world economy at large if left unaddressed. “We need a bigger push,” Georgieva said last week, calling for a sharp increase in the delivery of doses to the developing world.
Taking place virtually for a second year running, the meetings come as a cloud of controversy swirls around the IMF, following allegations that Georgieva artificially boosted China’s ranking in a flagship World Bank report on the best countries to do business with, in her previous job at the bank.
Georgieva met the IMF board last week in an attempt to rebut the accusations against her, issuing a statement to say she looked forward to resolving the matter.
The controversy is, however, unlikely to overshadow the storm clouds gathering for the world economy. Alongside the mainly virtual event, Rishi Sunak is expected to jet into Washington to attend a gathering of G20 finance ministers to discuss an action plan for the deteriorating outlook.
Taking a break from budget preparations in his first trip to the US since becoming chancellor last year, Sunak will also chair a G7 meeting, as part of the UK’s revolving presidency of the group of rich western nations. Ministers are expected to rubber-stamp global tax reforms agreed at the OECD last week, though the weaker global outlook and the IMF’s support for developing nations are expected to dominate the agenda.
Concern is mounting over the strength of the global economy, with expectations that rising inflation could force major central banks to reduce their pandemic stimulus measures at a time when the recovery from Covid-19 remains incomplete.
With supply shortages set to persist well into next year as the coronavirus Delta variant prevents a return to relative normality, a period of stagflation – stagnant growth and high inflation, reminiscent of the 1970s – could be on the cards.
It’s all a long way from the IMF’s optimism of the spring. If the outlook were to deteriorate at anything like the pace of the past six months, could a renewed winter of discontent lie ahead?