As the first World Economic Forum, to be held in person in 2020, opened in Davos, Switzerland on Monday, the International Monetary Fund said the economy was facing “perhaps its biggest test since World War II”.
“We are facing a potential merger of disasters,” IMF Managing Director Kristalina Georgieva said in a statement.
She warned that Russia’s invasion of Ukraine had “complicated” the effects of the Covid-19 pandemic, pushing for economic recovery and inflating inflation as food and fuel prices soared.
And then there is climate change.
The head of the International Energy Agency called on the countries to make the right investment choices in response to the fossil fuel shortage caused by Russia’s attack on Ukraine.
“Some people may use Russia’s invasion of Ukraine as an excuse for … a new wave of fossil fuel investments,” IEA chief Fatih Birol said during a discussion in Davos. “This will forever close the door to achieving our climate goals.”
The scale of the economic challenge was highlighted by a new OECD report on Monday, which showed that the combined GDP of the G-7 contracted by 0.1% in the first quarter of the year compared to the previous quarter.
To reduce economic stress, the IMF is urging government officials and business leaders to meet in Davos to discuss reducing trade barriers.
But as countries grapple with growing concerns about the cost of living crisis, some are moving in the opposite direction, imposing restrictions on trade in food and agricultural products that could exacerbate shortages and raise world prices.
Earlier this month, India’s decision to ban wheat exports led to a rise in grain prices, despite being a relatively small exporter. Indonesia banned most palm oil exports in April to protect domestic supplies, but will lift the ban this week.
Speaking during a visit to Tokyo, President Joe Biden said Monday that a recession is not imminent, and reiterated that the White House is considering removing some Trump-era tariffs on Chinese goods that Finance Minister Janet Yellen said do more harm than good to American consumers and businesses.
China, meanwhile, could see its economy shrink this quarter due to the impact of the Covid-19 blockade in Shanghai, Beijing and dozens of other cities, as well as the effects of the real estate crisis. The country’s central bank made the biggest cut in history to a key interest rate on Friday after home sales collapsed.
Zhu Ning, a professor at the Shanghai Advanced Financial Institute, said he believed the authorities still had ample opportunity to meet a series of challenges facing the world’s second-largest economy.
“China still has a lot of room, if it wants to, to cut interest rates, to give a monetary stimulus to the economy,” he said.
– Anna Kuban, Michelle To, Mark Thompson and Ali Maloy contributed to this article.
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