The President of the European Central Bank (ECB) at an event in Frankfurt (archive photo).
(Photo: Reuters)
Berlin The global economy is no longer recovering in lockstep, which complicates the tasks for fiscal and monetary policy. Both Kristalina Georgieva, head of the International Monetary Fund (IMF), and Christine Lagarde, President of the European Central Bank (ECB), pointed this out to the virtual world economy (WEF). While Georgieva warned of inflation risks in the USA and high debts in emerging and developing countries, Lagarde emphasized that there was no reason in Europe for an abrupt change of course in monetary policy with interest rate increases.
The two tax women of the world economy agreed that it was now important to analyze the causes of the strong surge in inflation in detail. “We have to ask not only where inflation is coming from, but how long it’s going to last,” Lagarde said. She agreed with the IMF chief that it is not just the supply shortages caused by the pandemic that are driving price levels up. “50 percent of inflation comes from higher energy prices,” said the central banker. Among other things, the current geopolitical tensions are partly responsible for this.
The head of the ECB reiterated her forecast that inflation will slow down in the coming years and that the ECB will therefore not follow the course of the US Federal Reserve (Fed). The Fed is already eyeing interest rate hikes. “We are not moving at the same pace,” emphasized Lagarde, recalling that there have so far been no signs of a wage-price spiral in Europe. “Inflation is not out of control.” Europe is unlikely to face the kind of surge in inflation that the US market has seen.
Brazil’s Economics Minister Paulo Guedes objected: “Global inflation is not a temporary problem, the central bankers are sleeping at the wheel,” said the trained economist and investment banker. In Brazil, the price increase is more than ten percent. Japan also shows how differently the world economy is developing. “We expect an inflation rate of one percent for 2022/23,” said Japanese central bank governor Haruhiko Kuroda. They will therefore stick to the very loose monetary policy in order to bring inflation back to the target of two percent.
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China is paying the price for its strict “zero Covid” policy
IMF boss Georgieva sees another risk for the world economy in the foreseeable weak growth in China. “This has consequences for the rest of the world,” said the Bulgarian. It raised doubts as to whether Beijing can maintain its previous “zero Covid” policy with tough shutdowns. “The economic cost of total containment of a contagious variant like omicron is very high,” she warned.
According to the IMF, many heavily indebted emerging and developing countries are in even greater danger. “The global debt mountain is now $226 trillion,” Georgieva said. If the Fed raises US interest rates, it will hit those countries that have borrowed in dollars particularly hard. “Of the low-income countries, 60 percent are either in default or at risk of default – more than twice as many as in 2015,” said the IMF chief.
More: Not every type of household feels it the same way: Who is affected by inflation and how badly