The series of shocks since 2020, including the pandemic, the Ukraine conflict, the energy crisis, and high inflation, have led to global economic losses of nearly $4 trillion. This analysis was presented by the International Monetary Fund (IMF) Chief Kristalina Georgieva in her traditional curtain-raiser speech before the IMF annual meeting in Marrakesh, Morocco, next week. The outlook for the global economy is currently perceived as bleak by the IMF.

In her speech, the IMF chief typically sets the tone for the discussions among finance ministers and central bank chiefs from the 190 IMF member countries. Despite some positive developments, her tone remains rather gloomy. It's not just the IMF's calculation of losses due to the numerous crises in recent years that is concerning; it's primarily the statements about the grim prospects. It increases the pressure on policymakers who will convene in Marrakesh next week.

As Georgieva mentioned on Thursday, the IMF estimates that the cumulative global output loss due to the consecutive shocks from 2020 until 2023 amounts to $3.7 trillion. The fund refers to this as "economic scarring." Nevertheless, this loss is unevenly distributed across countries. The United States is the only major economy where production has returned to pre-pandemic levels. The rest of the world still lags behind the trend, with low-income countries being the most affected. The reason is that they had "very limited options to cushion their economies and support the most vulnerable." Therefore, economic recovery after the crises is highly uneven.

Georgieva also stated that the recovery is weak. While the global economy has proven to be "remarkably resilient," and the first half of 2023 brought "some good news," especially due to unexpectedly strong demand for services and noticeable progress in inflation control, the current pace of global growth remains "quite weak." It is significantly below the average of 3.8%, which was achieved in the two decades before the pandemic. In July, the IMF had forecast 3.0% growth for 2023 and 2024. "And medium-term growth prospects have further deteriorated," notes Georgieva.

Given this context, Georgieva outlined three priorities for policymakers: First, there is a need to strengthen economic and financial stability. Reducing persistently high inflation remains "priority number one." This requires keeping interest rates higher for a longer period. "In light of the risk of a resurgence in inflation, premature policy easing must be avoided at all costs," Georgieva states.

After central banks indicated that the peak might have been reached in interest rates, markets had briefly speculated on rapid rate cuts. However, there has been a shift in thinking in recent days, causing some turbulence, especially in government bond markets. On the fiscal front, the fund now sees "significant risks." Most countries need tighter fiscal policies to rebuild fiscal space for future shocks.

The second priority, as per Georgieva, is to lay the groundwork for inclusive, sustainable growth through "transformative reforms." The third priority is to "strengthen collective resilience through international cooperation." Simultaneously, she also acknowledeges: "Just when we need it most, cooperation is weakening. The bridges connecting countries are crumbling as trade and investment barriers are rising." The pandemic and the Ukraine conflict have provoked and exacerbated a political-economic block formation that the fund sees as a major risk to global prosperity.