World Economic Forum: Global Economy Has 'Buffer' Against Recession, Says IMF's Gita Gopinath

Gita Gopinath said on the sidelines of the World Economic Forum in the Swiss resort of Davos that among the major threats to economic growth, the conflict between Russia and Ukraine could escalate

New Delhi: International Monetary Fund’s (IMF’s) First Deputy Managing Director Gita Gopinath has said while the world economy faces headwinds, current growth forecasts offer a buffer against a potential global recession, according to a report in Reuters.

Gopinath in an interview said on the sidelines of the World Economic Forum in the Swiss resort of Davos that among the major threats to economic growth, the conflict between Russia and Ukraine could escalate. She said, "You could have sanctions and counter sanctions".

Besides, the other challenges the world economy is facing inflation, a tightening of interest rates by central banks, and a slump in Chinese growth, she said.

"So all of these provide downside risks to our forecast," Gopinath said, with reference to the IMF's 2022 growth forecast issued last month of 3.6 per cent, a downgrade from a 4.4 per cent estimate in January. I would say at 3.6 per cent there is a buffer,” Gopinath said.

However she added that risks are uneven around the world.

"There are countries that are getting hit hard ... countries in Europe that are getting hit hard by the war, where we could see technical recessions," she mentioned.

According to IMF’s first deputy managing director, “Inflation will remain significantly above central bank targets for a while. It is very important for central bankers around the world to deal with inflation as a clear and present danger, that is something they need to deal with in a very forceful manner Financial conditions could tighten much more rapidly than we've already seen. And growth in China is slowing," she added.

To control inflation, the US Federal Reserve has already hiked rates twice so far this year, leading the charge among the largest central banks in the world.

The second rate hike by the US Fed at half a percentage point was the biggest in 22 years. Analysts are expecting at least two more of that size at coming meetings.

“What is very important is for the Fed to watch the data carefully and respond at a scale that’s needed to deal with the incoming data,” Gopinath said, while adding, “So if it turns out that inflation is especially broad ... is going up even more, they may need to react more strongly.”