Marrakech, Morocco, October 9-15, 2023
Global leaders face a bumpy road ahead, characterized by weak medium-term growth prospects, persistent inflation, geopolitical tensions, mounting debt, and higher interest rates, IMF First Deputy Managing Director Gita Gopinath told a seminar on the global economy.
With countries borrowing at much higher interest rates, they will need to find alternative ways to finance their development goals and manage the green transition. “We’re seeing a looming mismatch between the spending needs and the resources to pay for them,” Gopinath said, adding that countries must turn to domestic resource mobilization and seek to bolster their tax revenues.
With interest rates higher for longer, the focus must return to fiscal and debt sustainability, noted JP Morgan’s chair of global research, Joyce Chang. “The bond vigilantes are back and the Great Moderation is over.”
In this complex global environment, countries should avoid protectionism and fragmentation, according to WTO director general Ngozi Okonjo-Iweala. The organization’s research shows that trade fragmentation could result in long-term losses of up to 5 percent of global GDP, with significantly higher losses for emerging markets.
The issue does not lie with trade itself, but rather with the overconcentration of some supply chains, she said. Developing economies, excluded from the first wave of globalization, now have the right business environment to warrant their inclusion in supply chains. “We can build resilience while being inclusive—we are calling it ‘re-globalization’.”
Panelists agreed that the current environment is increasingly challenging and being transformed by technological advances such as artificial intelligence—and this requires a fundamental rethink of economics.
“The instruments that we have been using need to change, evolve, and adjust,” said Christine Lagarde, president of the European Central Bank. “That applies also to our communication and many factors that have an impact on our job as central bankers.”
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