Photo: Andrew Kelly/Reuters
As world leaders gather for the opening session of this year’s World Economic Forum, the International Monetary Fund said that the world is in its “biggest test since the Second World War.”
It’s crisis topping another crisis which has brought the world on edge, said economists.
IMF Managing Director Kristalina Georgieva told stakeholders in a statement, “We face a potential confluence of calamities.”
With the recent increase in global prices, many countries have been faced with high levels of inflation. One major cause for this is attributed to Russia’s involvement in Ukraine and the lasting effects of COVID-19 that started in 2020. The effects compounded and weighed heavily on the economic recovery efforts and stability of countries all over the world.
Meanwhile, debt levels are increasing, and interest rates are going up. This all adds to the pressure countries are under while also dealing with price hikes of domestic goods. Market turbulence also adds to the problem coupled with the supply chain disruption.
Also, climate change needs to be put into account.
Following Russia’s cut on the supply of oil, supply has dwindled in the market. Amid supply disruptions, the International Energy Agency told leaders to find ways to outsource alternative and safe energy. However, the European Commission has earlier declared plans to use coal a bit longer.
IEA chief Faith Birol slammed leaders, “Some people may well use Russia’s invasion of Ukraine as an excuse for … a new wave of fossil fuel investments. It will forever close the door to reaching our climate targets.”
The International Monetary Fund is further encouraging countries to lighten their trade barriers to lessen the effects of a possible recession. The economic talks at Davos hope to trigger changes within countries’ foreign policies concerning international commerce and restrictions on importing as well as exporting goods. German economic minister Robert Habeck said to leaders, “We cannot solve the problems if we focus on only one of the problems.”
Habeck further explained, “If none of these problems are solved, I fear, we will see a global recession — with huge implications, not only for the climate, for climate protection, but for global stability.”
The news from the OECD was grim, to say the least. The combined GDP of G-7 countries decreased by 0.1% this past year – this meant that things were not getting better for the countries.
In a recent visit by President Joe Biden to South Korea, he said that recession is likely, and there are difficult decisions to be made to ensure that its adverse effects will be reduced to the maximum.
Top economic adviser of former President Barack Obama said, “I’m more worried about recession risks about one year and further in the future. I think the Fed should be trying for a soft landing. I don’t know that they’ll succeed.”
China is also prepared to make adjustments in response to the global economic climate. “China still has a lot of room if it wants to — to lower interest rate, to give monetary stimulus to the economy,” said Zhu Ning, a professor at the Shanghai Advanced Institute of Finance.
Opinions expressed by US Insider contributors are their own.
