- The IMF forecasts global growth in 2022 at 4.4%, but these projections are being revised downwards due to conflict and the fallout from sanctions.
- The Global Economic Outlook session at Davos 2022 brought together leaders to discuss the key issues facing the global economy, including the prospect of recession.
The Global Economic Outlook panel discussion on Monday 23 May opened with the question on everyone’s lips: are we heading for a global recession and if so how concerned should we be?
Horizon has darkened with the prospect of another global recession
Kristalina Georgieva, Managing Director of the International Monetary Fund, opened with a cautious note, explaining that since the IMF’s latest forecasts the “horizon has darkened.” She was particularly concerned about food price shocks and how anxiety around the world over accessing affordable food was “hitting the roof.” Georgieva went on to point out that stalling action on the climate crisis and the slump in digital money assets was further darkening the outlook.
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Georgieva was deeply worried about countries slipping into recession that were already weakened before the pandemic hit, and which rely heavily on imports from Russia for energy and food. But she insisted “we have not seen that yet.”
Don’t use the R word
Cautious about recession fears in the US, David M. Rubenstein, Co-Founder and Co-Chairman of The Carlyle Group, recalled an anecdote from his time at the Whitehouse under President Carter when inflation advisor Alfred Kahn was told, “Don’t use the R word. It scares people.” So, he changed the word for “banana.” Rubenstein went on to admit that “the signs are not as favourable as I would like…but a banana may not be that far.”
Asked about the current situation in Europe and whether this would lead to recession, Jane Fraser, Chief Executive Officer of Citi simply replied, “Yes.”
“There are three or words right now. It’s Russia, its recession and its rates.” Fraser was particularly concerned about the storms Europe is facing – the ongoing supply chain issues and the energy crisis.
According to François Villeroy de Galhau, Governor of the Central Bank of France, the war in Ukraine was always going bring “bad economic news, less growth and more inflation.” He went on to say, “We will bring inflation back towards 2%. This is not only in our forecast, look at all forecasts including from the IMF.”
“I would play down the idea of a short-term trade off between inflation and growth,” he said. “In the short run, our priority is clearly … fighting inflation.”
Rubenstein ended the session on a positive note, saying he doesn’t believe the current economic crisis will be anything like previous shocks over the last 25 years – the dot.com bubble, the financial crisis or the pandemic. Again reiterating, “It’ll be a mild banana, if there’s a banana.”
A focus on long-term resilience and strong government policies to tackle climate change and healthcare (to prepare for future pandemics) were the key messages from Fraser. Furthermore, the world’s response to Ukraine and the pandemic have solidified Villeroy de Galhau’s strong conviction that democracy works.
Ending on a salutary note, Georgieva reminded us that the world has dealt with unthinkable crisis after unthinkable crisis and yet we remain resilient. The next chapter must focus on building resilient people – backed up by education, health and social protection.