IMF economists, as we are all aware, and all manner of economists in general, are dry and insipid creatures with no fancy to resort to imaginative and evocative language. Therefore, when IMF Economic Counsellor, Pierre-Olivier Gourinchas begins the World Economic Outlook (WEO), 2023 dated October 2022, with a one-sentence paragraph stating ‘As storm clouds gather, policymakers need to keep a steady hand’, it will do us all well, to sit up and take notice.
Monsieur Pierre-Olivier Gourinchas is of course ‘Economic Counsellor and Director of Research’ of the Research Department and the WEO was coordinated under his general direction.
Monsieur Pierre-Olivier, if I might be excused for using his first name, continued his flight of fancy and went on to subtitle the WEO with ‘Countering the Cost-of-Living Crisis.’
As storm clouds gather, policymakers need to keep a steady hand.
The global economy continues to face steep challenges, shaped by the lingering effects of three powerful forces: the Russian invasion of Ukraine, a cost-of-living crisis caused by persistent and broadening inflation pressures, and the slowdown in China.
Our latest forecasts project global growth to remain unchanged in 2022 at 3.2 percent and to slow to 2.7 percent in 2023—0.2 percentage points lower than the July forecast—with a 25 percent probability that it could fall below 2 percent. More than a third of the global economy will contract this year or next, while the three largest economies—the United States, the European Union, and China—will continue to stall. In short, the worst is yet to come, and for many people 2023 will feel like a recession.
IMF, World Economic Outlook- Countering the Cost-of-Living Crisis, October 22
World Economic Outlook, October 2022: Countering the Cost-of-Living Crisis (imf.org)
The single sentence paragraph referring to gathering storm clouds, aptly summarizes the main conclusion of the report downgrading the 2023 growth target to 2.7% with a ‘a 25 percent probability that it could fall below 2 percent’ and continue the ominous tone with ‘In short, the worst is yet to come, and for many people 2023 will feel like a recession.’
3 months prior to the IMF report, in June 2022, economists at the World Bank issued their ‘Global Economic Prospects stating in quite stark terms that
Following more than two years of pandemic … a reset to sharply hasten the deceleration of global economic activity… The war in Ukraine is leading to high commodity prices, adding to supply disruptions, increasing food insecurity and poverty, exacerbating inflation, contributing to tighter financial conditions, magnifying financial vulnerability, and heightening policy uncertainty … there is essentially no rebound projected next year …as many headwinds—in particular, high commodity prices and continued monetary tightening—are expected to persist. Moreover, the outlook is subject to various downside risks, including intensifying geopolitical tensions, growing stagflationary headwinds, rising financial instability, continuing supply strains, and worsening food insecurity.
World Bank, Global Economic Prospects, June 2022
Perhaps not to be outdone by the prophets of doom and gloom, Rebeca Grynspan, Secretary General of UNCTAD, in her October 3rd reported that the world is “on the edge of a recession” and developing nations like those in Asia could bear the brunt of it. … A global slowdown could potentially inflict worse damage than the financial crisis in 2008 and the Covid-19 shock in 2020, warned the UNCTAD in its Trade and Development Report 2022.
Trade and Development Report 2022 | UNCTAD
Meanwhile a survey by KPMG polling more than 1,300 chief executives in June and July of 2022, reported that they are ‘anticipating a recession in the next 12 months … that increased disruptions — such as a recession — could make it difficult for their businesses to rebound from the pandemic.’
So what shall we, in the Maldives, take from the unanimous verdict of global economists? Shall we tighten our belts and prepare for the storm clouds on the radar of IMF and other global economists or shall we continue to act much like the famed drunken sailor on annual shore leave?