Isranomics

Global economic growth set to slow to lowest pace since 1990, warns IMF head

by | Apr 8, 2023 | Economy | 0 comments

According to the head of the International Monetary Fund (IMF), Kristalina Georgieva, the global economy is set to grow at approximately 3% over the next five years, the slowest pace since 1990. Speaking ahead of the IMF’s annual meeting in Washington, Georgieva noted that the path ahead was “rough and foggy,” and that cooperation to address the problems was becoming more difficult.

In 2021, global growth dropped almost in half to 3.4% following a post-pandemic rebound, which was below the 3.8% average growth of the last two decades. Despite strong job markets in countries such as the US, the slowdown has continued this year. The IMF has forecast that growth will drop below 3% this year, with India and China generating more than half of the growth.

Advanced economies are expected to see growth decline by roughly 90%, reflecting the weight of higher borrowing costs, after central banks raised interest rates sharply to stabilize soaring prices. A substantial increase in the cost of financing for low-income countries coincides with a decline in export demand, making it even more challenging for these nations to catch up.

As long as financial pressures remain limited, Georgieva urged authorities to continue increasing interest rates to combat inflation. She cautioned that if this were to change, policymakers would be faced with an even tougher task, involving difficult trade-offs between initiatives directed at slowing inflation and maintaining financial stability objectives, as well as the application of their respective tools.

The IMF is anticipating an increase in requests for financial assistance or debt restructuring as the shocks from the Covid-19 crisis, the war in Ukraine, and the soaring prices remain main areas of concern for many countries. Georgieva called for wealthier nations to boost funds for the IMF, in order to enable the ongoing support for countries in need via providing low-cost loans.

This latest news should certainly be taken seriously by the Israeli policy makers. Israel’s economy, heavily reliant on technology and innovation, may face challenges as the global economy slows down. While the nation has been able to maintain its economic growth during the pandemic, its exports may be impacted by the reduced demand from other countries facing economic challenges. Additionally, the recent surge in inflation in Israel may force the central bank to increase interest rates, making it harder for businesses and consumers to borrow money and slowing down economic activity. Therefore, the Israel’s government will need find the ways to support its economy via accommodative policies in order to allow its exporters to remain competitive in the global market and avoid being adversely impacted by the slowing global economy. Additionally, Israel’s high-tech sector, which currently constitutes around 50% of exports and has been a driving force of the country’s economic growth, may face challenges as international demand for their products and services decreases. Hence, the government may need to invest in diversifying its economy and promoting domestic consumption to offset any potential global economic slowdown.

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