Friday, February 26, 2021

IMF warns of financial, geopolitical risks to economic forecasting

The International Monetary Fund (IMF) says new risks have emerged that threaten attainment of forecast economic growthÔÇöalthough the major one of recession in Japan and Eurozone has decreased substantially.

Both the Eurozone and Japan are Botswana’s trading partners and recession there would mean a collapse in demand for exports. The Washington based body said the world has seen a rise in other risks that include financial, geopolitical challenges. IMF Economic Counsellor and Director of Research Department, Olivier Blanchard said today’s world in which there are large movements in exchange rates or in relative prices is a more risky world from a financial point of view.

“I think based on the numbers that we now have, the probability of a recession has not gone to zero but it has decreased substantially,” he said referring to the Euro area and Japan.

“So, what we saw as the major world macroeconomic risk from a systemic point of view probably is less likely to happen than it was, and it is good news,” Blanchard said in the transcript of a Press Briefing on the World Economic Outlook (WEO).

The IMF said it forecast global growth to be roughly the same this year as last year, 3.5 percent versus 3.4 percent. This global number reflects an increase in growth in advanced economies, 2.4 percent versus 1.8 percent, offset by a decrease in growth in emerging market and developing economies, 4.3 percent versus 4.6 percent last year.

The IMF said there are other risks on the political and geopolitical side, the obvious one being the risk of an intensified Greek crisis, which could well unsettle financial markets; that is fairly obvious.

“Then you have turmoil which continues in Ukraine, in parts of the Middle East. So far, this is very sad. It is not systemic, but this is something which could, again, get worse.”

Blanchard also said whenever there are large movements in relative prices, and it can be the price of oil, it can be the exchange rate, there will be winners and losers. The collapse of oil prices in 2014 was a double edged sword as it was good for importers, but bad for exporters.

“Now, this is clearly good news for the oil importers, which are most major countries. For the oil exporters, it is clearly not very good news. They are suffering from the other side, the decrease in real income coming from the decrease in the price of oil,” stated Blanchard.

“Many of them have financial resources that they have accumulated when the price was relatively high and so can accommodate and decrease spending only marginally. Some of them, as you know, are in more serious trouble. But overall, looking again at the effect on the world economy, I think there is no question that the decline in the price of oil is a very good thing for the world economy.”

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