IMF chief Kristalina Georgieva urged world policymakers to take concerted action to avoid a dangerous "new normal" as the risks of a global recession grow higher due to recurring economic turmoil, AFP reported.
She said it was crucial "stabilize the global economy by addressing the most immediate challenges," including rampant inflation. Politicians must act together to "prevent this period of heightened fragility from becoming a dangerous 'new normal,'" Georgieva said.
She warned that the process would be painful, and that if central banks acted too aggressively to reduce price pressures, it could trigger a "prolonged" economic slowdown.
Finance ministers and central bank governors from more than 180 countries will meet next week in Washington for the first face-to-face meeting between the International Monetary Fund and the World Bank since 2019, before the Covid-19 pandemic.
Faced with a "darkening global outlook ... the risks of recession are rising," Georgieva said, announcing that the IMF plans to downgrade its 2023 global economic forecast once again.
One-third of countries are expected to see at least two quarters of contraction, and "even when growth is positive, it will feel like a recession" because rising prices reduce income, she said.
In July, the fund lowered its growth forecast for this year to 3.2% and for next year to 2.9%, its third consecutive downgrade.
Global supply disruptions have already become an issue as demand has surged since the pandemic slowdown, spurring inflation around the world, and tensions have risen since the war in Ukraine, which Georgieva called "senseless," which has led to sharp increases in food and grocery prices.
"Far from being transitory, inflation has become more persistent," and taking action before high prices take root is a key challenge for policymakers, Georgieva said, warning that "the cost of a policy misstep can be enormous."
"Not tightening enough would cause inflation to become deanchored and entrenched," but moving "too much and too fast -- and doing so in a synchronized manner across countries -- could push many economies into prolonged recession," she said.
Despite the risks, central banks need to continue to "act decisively."
"This is not easy, and it will not be without pain in the near term," she cautioned. "But the key is to avoid much greater and longer-lasting pain for everyone later on."