World trade has entered a phase of “fragmentation” due to Russia’s war against Ukraine, disruptions in global supply chains (affecting trade in commodities) and due to increasing polarization between countries “friendly” to Ukraine and/or or others more “distant” and closer to Russia and China.
This trading bill could cost the equivalent of a year’s worth of wealth production in Germany and Japan in the long run, warned Kristalina Georgieva, the director general of the International Monetary Fund (IMF), yesterday (Thurs. 6).
In addition, the head of Portugal’s former creditor (from the troika era) revealed that the real growth rate of the world economy (excluding inflation) should stagnate around 3% “over the next five years”. year “90% of advanced countries [mais ricos e desenvolvidos]slowing down by the crisis caused by the war and the large and rapid rise in interest rates.
At the end of January, the IMF’s interim forecast pointed to a decline in global growth from 3.4% in 2022 to 2.9% in 2023.
At the time, the fund’s twin institution, the World Bank (BM), predicted worse: it surprised with a global growth forecast of just 1.7% in 2023, leading many analysts to talk of an imminent world “recession”.
Several economists believe that global growth of less than 3% could in practice mean a recession.
Georgieva never uses the word recession, but the tone – in the opening speech of the IMF/WB spring meetings, which start next Monday and end on Sunday (the 16th) – is still gloomy.
Forecasts for the vast majority of the world’s countries (about 190), including Portugal, will be published next Tuesday (the 11th) in the World Economic Outlook (Outlook).
For now, the head of the IMF says that, according to the Washington-based institution’s new accounts, “after a strong recovery in 2021,” largely explained by the low base caused by the 2020 pandemic, “the serious shock came from the war of Russia in Ukraine and its consequences”.
“In 2022, global growth will have almost halved, from 6.1% to 3.4%. And the slowdown has continued this year.”
However, Georgieva fears that the war will continue and that the rift in globalization, caused by enmity and increasing distance between economic blocs (which previously cooperated better or slightly more), will seriously damage the economy as a whole.
“Our studies show that the long-term costs of trade fragmentation could amount to 7% of GDP [produto interno bruto] – which is equivalent to the combined annual production of Germany and Japan,” the director illustrated.
“If we add to this a divide in access to technologies, some countries could lose up to 12% of GDP,” Georgieva added.
In addition, “the fragmentation of capital flows, including foreign direct investment (FDI), would be another blow to global growth prospects.”
“The combined losses of all these channels [de transmissão] maybe hard to quantify, but it’s clear they’re all going in the wrong direction,” he lamented.
This year is going to be complicated
“Despite the surprising resilience of labor markets and consumer spending in most advanced economies, and a further reopening of the Chinese economy, we expect the global economy to grow by less than 3% in 2023,” said the Bulgarian-born economist.
“We expect global growth to remain around 3% over the next five years”, but this is “our lowest medium-term growth forecast since 1990, and well below the average of 3.8% over the past two years”. the leader of the IMF.
“This makes it even more difficult to reduce poverty, heal the economic scars of the covid crisis and provide new and better opportunities for everyone,” he added.
India and China account for half of the world’s growth
“As you will see in our new outlook, growth remains historically weak – both in the short and medium term” and “there are also clear differences between groups of countries, with Asia in particular being a highlight for the positive”.
“India and China are expected to contribute half of global growth by 2023,” added the head of the fund.
In the world of the rich countries, on the other hand, the impact of the crisis on the pace of recovery is greater.
“Other economies face a stronger growth pick-up ahead. Economic activity is slowing in the United States and the Eurozone, where higher interest rates are weighing on demand.”
According to Georgieva, “About 90% of advanced economies are expected to record a decline in growth rates this year.” This will be the case, for example, in Portugal and many others in Europe.
Concerned about financial stability
Despite favoring rate hikes by central banks to halt inflation, Georgieva calls for “vigilance” regarding the implications for the economy and financial stability.
“Central banks should continue to use interest rates to fight inflation, while using financial policies to ensure financial stability. This is the right thing to do, but as long as financial pressures are contained.”
If this changes, “policymakers face an even more complex task, with difficult trade-offs between their inflation and financial stability objectives”. “That’s why they need to be more vigilant and agile than ever,” says Georgieva.
New scenario for Portugal next week
Even with new data pointing to less sluggish growth, the latest forecasts for Portugal say economic activity could only increase by 1% (European Commission, in February), 1.8% (Bank of Portugal, in March).
The Portuguese government maintains the baseline projection of the state budget for this year (OE2023): it states that the economy can grow by 1.3% in 2023.
Luís Reis Ribeiro is a journalist for Dinheiro Vivo
Source: DN
