MNI:Inflation Must Be Tamed Even If Recession Is The Price-IMF

Global policy makers must keep the fight to bring down inflation as their top priority, with central banks acting "decisively" and governments avoiding "indiscriminate" stimulus, IMF chief Kristalina Georgieva said Thursday, adding that stance means a fourth downgrade to global forecasts and leaves many economies on the brink of recession.

The fund's updated forecast outlook next week will cut the 2023 growth forecast from 2.9%, she said in the text of a "curtain raiser" speech for semi-annual IMF meetings.

"Countries accounting for about one-third of the world economy will experience at least two consecutive quarters of contraction this or next year," Georgieva said. "Even when growth is positive, it will feel like a recession because of shrinking real incomes and rising prices."

Lost output due to shocks such as the Ukraine war and Covid will amount to USD4 trillion through 2026, about equal to the size of Germany's economy, the IMF estimates. Rising financial instability related to sovereign debt and capital flows add to downside risks. Avoiding the pain involved with slowing inflation will only lead to even greater distress in the future, Georgieva said.

"Inflation has remained stubbornly high and broad-based -- which means that central banks have to continue to respond," she said. "In the current environment, this is the right thing to do: act decisively even as the economy inevitably slows."

The Fed must keep hiking rates to 5% after lagging the inflation surge, ex-Fed visiting scholar Michael Bordo has told MNI. (See: MNI INTERVIEW: Fed Needs To Hike To At Least 5%- Bordo) Global bond yields have jumped this year as investors see central banks pressing ahead even amid signs growth is slowing.