Abu Dhabi, UAETuesday 18 February 2020

Davos analysis: IMF boss makes a colourful start in bid to 'dispel the shadows'

Kristalina Georgieva painted a gloomy picture in her opening World Economic Forum statement

Kristalina Georgieva, IMF managing director, during a press conference regarding the World Economic Outlook Update, prior to the 50th annual meeting of the World Economic Forum (WEF) in Davos. EPA
Kristalina Georgieva, IMF managing director, during a press conference regarding the World Economic Outlook Update, prior to the 50th annual meeting of the World Economic Forum (WEF) in Davos. EPA

The most colourful language heard in Davos on Monday was without doubt from the statement provided by the managing director of the International Monetary Fund, Kristalina Georgieva.

While providing what was a fairly gloomy overview of where the world economy currently is, she managed to quote Russian author Leo Tolstoy.

“All the variety, all the charm, all the beauty of life is made of light and shadow,” is the line she repeated from Anna Karenina.

This followed on from Ms Georgieva making an “eerie” comparison between the new decade we are in and the 20s of a century ago, which infamously ended in a financial crash and the Great Depression.

“We are back in the 1920s … similar high inequality, rapid spread of technology and huge risks and rewards in finance,” she said. “For the analogy to stop right there and go no further acting together in a co-ordinated manner is critical.”

It was a call urging a renewed spirit of co-operation.

Ms Georgieva earlier said when listing the many issues holding back a recovery in global economic growth that “above all we are all adjusting to live with the new normal of higher uncertainty”.

The only bit of good news we have, she said, is the easing of the US-China trade war. There was a caveat, however.

“The underlying causes of trade tensions and the fundamental issues of reform of the trade system are still with us.”

There was more to be concerned about.

“Just in the very first weeks of the New Year we have witnessed increased geopolitical tensions in the Middle East and we are seeing the dramatic impact that climate shocks could have," she said. "We saw them in Australia as well as in part of Africa.”

In October, she said, the IMF had been able to succinctly sum up the global economic situation in only two-words: “synchronised slowdown” — but now, after much deliberation, it could not avoid a minimum of four: “tentative stabilisation, sluggish recovery”.

We avoided the worst-case scenario of recession last year thanks to a massive wave of monetary easing from central banks around the world. Seventy-one rate cuts by 49 central banks represents the most synchronised monetary easing since the financial crisis. However, monetary policy is not enough to propel growth and now governments will need to be ready to take action on the fiscal side.

Ms Georgieva finished with a flourish.

“For the future of the 20s, acting together co-operating more will bring more light that can dispel the shadows. May that be our New Year resolution.”

Updated: January 21, 2020 09:22 AM

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