For the past year or so, it hasn’t exactly been all sunshine and roses at the International Monetary Fund, the body responsible for stabilising and supporting the world economy.
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First, they had to deal with rising inflation caused by supply chain bottlenecks and then the further spreading of another COVID variant, this time Omnicron, and now the world is contending with the Russian invasion of Ukraine — something no one could have predicted months ago when the organisation published its world economic outlook assessment at the beginning of the year.
Not only will Russia’s acts of aggression lead to slower growth and even higher inflation throughout 2022, the IMF also warns that the war will worsen two already difficult political dilemmas facing central banks and finance ministers.
Central banks such as the Bank of England and the Federal Reserve need to address the issue of the intensifying cost of living crises and they’ll need to do so without halting any recovery progress made in the wake of the height of the pandemic, which won’t be an easy task.
As for finance ministers, such as Rishi Sunak, the challenge will be to achieve then right balance between protecting the most vulnerable of the population, while simultaneously fixing the damage that COVID-19 spending caused to public finances. While the IMF admits the task will be difficult, it has also warned that a strategy consisting of being too frugal won’t help matters.
The organisation has said that while fiscal measures taken during the pandemic were warranted, debt levels are now at all time highs across the globe. In order to crawl back from such levels and avoid sky-high interest rates, governments need to consolidate and prioritise spending to support vulnerable communities that have suffered because of the pandemic and subsequent economic issues.
The factors that will have the biggest impact on the global economy moving forward are the war, rising interest rates, how quickly taxes rise and spending is cut, the effect of lockdowns in China, and of course, any further pandemic developments.
Be sure to stay abreast of the ever-changing economic climate to ensure your finances aren’t affected. Don’t hesitate to reach out to your trusted financial adviser with any questions you might have.