IMF’s Gopinath calls ‘buffer’ against global economic downturn

The International Monetary Fund’s No. 2 official said Monday that the current growth forecast offers a buffer against a possible global recession as the world economy faces a crisis.

Among the main threats to economic growth, Gita Gopinath, the IMF’s first deputy managing director, told Reuters that the conflict in Ukraine could escalate further, adding: “You may have sanctions and counter-sanctions.”

In an interview on the sidelines of the World Economic Forum at a Swiss resort in Davos, Gopinath said other challenges include inflation, tightening interest rates by central banks and a slowdown in Chinese growth.

“So all of this poses a negative risk to our forecast,” Gopinath said, adding that the IMF’s 2022 growth forecast released last month was 3.6%, downgraded from the 4.4% estimate in January.

“I would say 3.6% has a buffer,” he said, acknowledging, however, that risks around the world are unequal.

“There are some countries that are hitting hard … countries in Europe that are being hit hard by the war, where we are seeing a technological recession,” Gopinath added.

Gopinath said that inflation would be “significantly higher than the central bank’s target for some time”, adding: . ”

“It simply came to our notice then. And growth is slowing in China, “he added.

The US Federal Reserve is leading the charge among the largest central banks, with two rate hikes so far this year.

Its second, at half a percentage point, the largest in 22 years. Expect at least two more of that size at the upcoming meeting.

Gopinath said, “What is very important for the Fed is to carefully monitor the data and respond to the scale needed to deal with the incoming data.”

“So if it turns out that inflation is going to be particularly broad… even higher, they may have to react more strongly.”

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