Global economy has ‘buffer’ against recession, says IMF’s Gopinath

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Gita Gopinath, economic adviser and director of the research department of the International Monetary Fund (IMF) speaks during a news conference in Santiago, Chile July 23, 2019. REUTERS/Rodrigo Garrido

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DAVOS, Switzerland, May 23 (Reuters) – As the global economy faces headwinds, current growth forecasts provide protection against a possible global recession, the International Monetary Fund’s No. 2 official said on Monday.

Among the main threats to economic growth, the IMF’s first deputy managing director, Gita Gopinath, told Reuters that the conflict in Ukraine could worsen, adding: “You could have sanctions and counter-sanctions.” Read more

Gopinath said in an interview on the sidelines of the World Economic Forum in the Swiss resort of Davos that other challenges included inflation, interest rate tightening by central banks and slowing Chinese growth. Read more

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“So all of this poses downside risks to our forecast,” Gopinath said, referring to the IMF’s 2022 growth forecast released last month of 3.6%, a downward revision from an estimate. 4.4% in January. Read more

“I would say at 3.6% there is a buffer,” she said, conceding however that the risks are uneven around the world.

“There are countries that are hard hit…countries in Europe that are hard hit by war, where we might see technical recessions,” Gopinath added.

Gopinath said inflation “will remain well above central bank targets for some time to come”, adding: “It is very important that central bankers around the world treat inflation as a clear and present danger, it’s something they have to deal with in a very forceful way”.

“Financial conditions could tighten much faster than we’ve seen before. And growth in China is slowing,” she added.

The US Federal Reserve is leading the charge among the largest central banks, with two rate hikes so far this year.

His second, at half a percentage point, was the most in 22 years. At least two more of this size are expected at future meetings.

“What’s very important is that the Fed carefully monitors the data and responds on the scale necessary to process incoming data,” Gopinath said.

“So if inflation turns out to be particularly wide … rises even more, they may have to react more strongly.”

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Reporting by Alessandra Galloni and Dan Burns; Editing by Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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