BREAKING NEWS
This content is not available in your region

World economy on 'firmer footing' but 'debt and inequality pose risks'

Access to the comments Comments
The IMF chief insisted public support not be withdrawn prematurely.
The IMF chief insisted public support not be withdrawn prematurely.   -   Copyright  Jose Luis Magana/Copyright 2018 The Associated Press. All rights reserved
Text size Aa Aa

The world economy is on "a firmer footing" thanks to the accelerated pace of vaccination and strong fiscal stimulus programmes, but growing inequality, high debt and divergences between wealthy and low-income countries remain important risks, Kristalina Georgieva, the managing director of the International Monetary Fund (IMF), has warned.

"We are going to be upgrading our projections for growth for this year and the next," Georgieva said. "But there is also a dangerous divergence in economic fortunes within countries and across countries, and we need to focus on steering out of the health crisis."

Back in January, the IMF projected global growth of 5.5% in 2021 and 4.2% in 2022, following a contraction of 3.5% in 2020 caused by the coronavirus pandemic. The plunge in the eurozone was much more pronounced, standing at 7.2%.

Speaking to Euronews, the IMF chief urged governments to "invest in a future that is greener, smarter, more resilient to shocks and more inclusive."

"Right now, the most important priorities remain accelerate vaccination, deal with the health crisis, and make sure support is not withdrawn prematurely and I'm pleased to see that these are the top priorities of European leaders and the European people," she said, praising the EU for its landmark €750 billion recovery fund, which will help tourism-dependent countries to kick start their badly-damaged economies.

Unlike the United States, where the $1.9 trillion relief bill advanced by President Joe Biden is already up and running, the EU's recovery plan still needs to be ratified by all 27 member states. So far, only sixteen have signed it off. The European Commission wants to start distributing grants and loans before the summer.

Georgieva insisted that all member states must benefit from the fund because "otherwise the greatest power of the European Union, which is the convergence engine we have, would not operate to the fullest."

"Our data shows that there is potentially three times difference in lost income per capita between the well-performing countries, those that are ahead, and those that are behind. That cannot be the case in the European Union."

Debt, bankruptcy and inequality: all on the rise

During the interview, Georgieva highlighted several mains risk that governments must watch out for in the coming months, like sudden changes in financial conditions resulting from a sharp recovery.

"If we have the world economy booming and growth exceeding expectations, that may lead to rising interest rates, tightening of financial conditions. We have to be ready. Thankfully, central banks, including the European Central Bank, have been exemplary in providing clear communication and in sustaining low-interest rates in a predictable manner," she said.

Public debt also poses an important problem, she warned. According to the IMF director, fiscal stimuli has led the world to reach an average 100% GDP-to-debt ratio.

"We have to think of medium-term fiscal consolidation when the time is right, not yet. We still have to make sure we support the economy. But over time, it is important to recognise that, yes, growth would lift up revenues, but it may be necessary to take steps also in terms of how the taxation system works in the 21st century."

Georgieva also alerted that, as the public support is gradually withdrawn, the risk of bankruptcy for small and medium-sized enterprises will increase, "finding it hard to survive".

Another threat to the post-coronavirus world is rising inequality.

"We have seen in previous cases of pandemics like H1N1 [and] Zika, that inequality goes up and it stays up for quite some time. We see that this crisis is hitting low-skilled workers, women, young people the hardest," she said.

"It is very important not to forget [the] progress we made on gender equality, that is now that is now eroding, [and] make sure that we make it easy for women to participate in the labour market, to participate in the economy, so we move forward, not backward, on that particular topic."

Suez crisis reminds us 'how interdependent we are'

On a final note, Georgieva took a moment to reflect on the recent crisis at the Suez Canal, where the Ever Given, a colossal 400-metre-long container ship, blocked one of the world's busiest trade routes for six days. The protracted obstruction disrupted global commerce and laid bare the downside of globalisation.

"It is an important reminder [of] how interdependent we are and how important trade is for us to function. It is also an indication that we cannot take our good fortune ever for granted, whenever we are, and that, working together is the only way through this crisis," said Georgieva.

"If you take the ship as an analogy for the future, it got lifted up because of ingenuity and also a little bit of help from nature. We need to protect and develop both our ingenuity, our creativity, pulled this from this pandemic. But don't forget, we also are in the hands of Mother Nature. Protect it."