IMF Warns of Possible Global Economic Derailment

The International Monetary Fund (IMF) has begun warning the largest economies in the world that a global economic catastrophe could occur if concerted action is not taken; however, many economists fear that the Group of 20 (G20) economies are unwilling or unable to do anything about the IMF’s dire predictions.

The International Monetary Fund (IMF) has begun warning the largest economies in the world that a global economic catastrophe could occur if concerted action is not taken; however, many economists fear that the Group of 20 (G20) economies are unwilling or unable to do anything about the IMF’s dire predictions.

David Lipton of the IMF said, “The IMF’s latest reading of the global economy shows once again a weakening baseline.” Although he acknowledged the world economy has continued to expand, he cautioned that, “we are clearly at a delicate juncture, where risk of economic derailment has grown.”

The IMF began sounding the alarm late last month during a meeting with the G20 in Shanghai. At that time, it warned that it would likely be forced to downgrade its economic performance outlook for the global economy by April. At the same time, IMF Managing Director, Christine Lagarde, advised that a coordinated effort would be needed to avoid catastrophe, urging governments that had sufficient margins in their budgets to increase spending. She also suggested that every nation should accelerate their respective economic overhaul plans.

Unfortunately, the IMF’s warnings seem to be falling on deaf ears. Member states seem to disagree with the institution regarding the severity of the problem or the best way to fix it. These nations remain skeptical that the situation is as dire as the IMF has warned, and disagree over how best to arrest or reverse the trends that the IMF fears spell disaster for the global economy.

For its part, Germany released a statement flatly denouncing the IMF’s position: “We are strictly against announcing publicly that the G20 is preparing a stimulus program.”

A major part of the IMF’s concern is that the nations of the world are running out of ways to resolve possible problems in their economies. Speaking to this concern, Lipton said, “For the sake of the global economy, it is imperative that advanced and developing countries dispel this dangerous notion by reviving the bold spirit of action and cooperation that characterized the early years of the recovery effort [following the economic collapse in 2008].”

The IMF is not alone in predicting possible rough times ahead. The Organization for Economic Cooperation and Development announced this week that its leading economic indicators suggest global growth will slow over the next few months.

Unfortunately, senior policy makers seem unimpressed by these indicators. As a senior US Treasury official said, “There’s a great deal of economic uncertainty in the world, but there’s not a crisis and it would not be reasonable to expect a crisis response.”