The head of the International Monetary Fund (IMF), Kristalina Georgieva, has cautioned that global economies are encountering a phase of subdued growth coupled with escalating debt burdens.
In a statement that may resonate with Chancellor Rachel Reeves as she contemplates her inaugural budget, Georgieva indicated that growth is unlikely to yield the necessary tax revenues needed to manage debt and facilitate investments in the transition to sustainable energy.
“While inflation rates may be decreasing, the elevated price levels that we experience are likely here to remain,” she articulated.
“Households are suffering, and there is widespread frustration among the populace. Developed nations have experienced inflation rates that are at unprecedented highs for a generation.”
“Projections for medium-term growth indicate it will likely be unremarkable. It will not be drastically lower than pre-pandemic levels, but it remains insufficient.”
“This is not enough to eliminate global poverty, create the number of jobs necessary, or generate the tax revenues required for governments to address substantial debt obligations while meeting critical investment requirements, including for the green transition.”
Georgieva made her remarks prior to the upcoming annual IMF meeting in Washington DC next week, which will be attended by Ms. Reeves as she seeks to finalize budget strategies expected to entail tax increases, reductions in departmental budgets, and modifications to borrowing protocols to enable her to invigorate infrastructure investments.
On Thursday, Downing Street verified that the proposed budget measures have been forwarded to the Office for Budget Responsibility, which is set to provide feedback with a forecast assessing the implications on Tuesday.
Additional forecasts are scheduled to be released to address any changes — one on 25 October, with the final draft set to be published alongside the budget on 30 October.
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Furthermore, Georgieva indicated that trade conflicts could pose additional risks to growth, a comment interpreted as a subtle reference to the ongoing tensions between the US and China.
“Key nations, driven by concerns of national security, are increasingly turning to industrial policy and protectionist measures, leading to a series of trade limitations,” she noted.
“In the future, trade will not fulfill its previous role as a key growth catalyst. It is the fragmentation I warned about back in 2019, but in an even worse context. It feels akin to dousing an already tepid global economy with cold water.”