IMF Chief Georgieva: Interest rates will remain high for a long time

International Monetary Fund (IMF) Managing Director Kristalina Georgieva stated that the decline in core inflation is still lagging, noting that one must be prepared for interest rates to remain high for a longer period, which could last into 2024 and perhaps 2025.

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IMF Chief Georgieva: Interest rates will remain high for a long time

In her speech at the Asia-Pacific Economic Cooperation (APEC) Summit, Georgieva stated that the global economy has been surprisingly resilient this year, but the recovery process from successive pandemic and war shocks continues to be slow and uneven.

Stating that global economic growth forecasts for both 2023 and 2024 are at 3 percent, Georgieva pointed out that medium-term growth expectations remain somewhat weak.

Georgieva noted that global economic growth is slightly better than the forecasts they made at their meetings last year, but remains below the 3.8 percent growth trend of the last 30 years.

Emphasizing that the US is the only major economy to have fully reached its pre-COVID-19 trajectory, Georgieva reported that, conversely, emerging markets and developing economies remain between 4 and 8 percent below their pre-pandemic growth levels.

"CENTRAL BANKS MUST REMAIN PRUDENT"

Drawing attention to some good news on the inflation front, Georgieva said, "Inflation is slowing down. We expect headline inflation, which was over 9 percent last year, to fall to 4.8 percent in 2024.

Core inflation is still lagging, and as a result, unfortunately, we need to be prepared for interest rates to remain high for a longer time. Likely into 2024 and perhaps 2025."

Emphasizing that central banks should remain prudent where inflation is still below target and communicate their future intentions based on data, Georgieva stated that it will be a difficult period for financial authorities almost everywhere.

Georgieva noted that growth in the US exceeded expectations in the third quarter and that despite a slight slowdown in momentum, inflation is still falling and labor markets remain very strong, while also recalling that they raised their growth forecasts for China last week.

IMF Managing Director Georgieva noted that what is good for the US and China, the two major "engines" of the world economy, is also good for the rest of the world.

"DEVASTATING FOR COUNTRIES"

Touching upon the Israel-Palestine conflicts, Georgieva stated that from an economic perspective, this is "devastating" for the countries at the center of the conflict.

Pointing out that the situation is also very risky for neighboring countries Lebanon, Jordan, and Egypt, Georgieva warned that in terms of its impact on the world economy, the initial spike in energy prices has receded, but the longer the conflict lasts, the higher the risk and the negative impact on geopolitical fragmentation will be.

"INCREASES UNCERTAINTY ABOUT THE FUTURE"

Pointing out that climate change also increases uncertainty about the future, Georgieva stated that there is a need for more robust macroeconomic foundations that leave very little room for policy errors.

Stating that slow growth forecasts are mostly due to persistent low productivity, Georgieva emphasized that to change this, there is a need for structural reforms that will increase labor productivity and enable the safe utilization of opportunities from new technologies, especially artificial intelligence, while simultaneously managing their risks.

Georgieva noted that artificial intelligence could increase labor productivity by 2 to 3 percent annually, but it will also create a transformation in the labor market, and people could lose their jobs, which could increase social unrest if not addressed.

News Source: AA