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World economy has ‘buffer’ against recession says IMF’s Gopinath By Reuters

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© Reuters. FILE PHOTO: Gita Gopinath, economic adviser and director of research at the International Monetary Fund (IMF), speaks during a news conference in Santiago, Chile, July 23, 2019. REUTERS/Rodrigo Garrido

Alexandra Galloni

DAVOS, Switzerland (Reuters) – While the world economy faces headwinds, current growth forecasts provide a buffer against a potential global recession, the International Monetary Fund’s No. 2 official said on Monday.

Among the main threats to economic growth, IMF First Deputy Managing Director Guita Gopinat told Reuters that the conflict in Ukraine could escalate, adding: “You could be subject to sanctions and counter-sanctions”.

Other challenges include inflation, central bank tightening of interest rates and slowing growth in China, Gopinath said in an interview on the sidelines of the World Economic Forum in the Swiss resort of Davos.

“So all of this poses downside risks to our forecast,” said Gopinath, referring to the International Monetary Fund’s 2022 growth forecast of 3.6% released last month, down from a 4.4% forecast in January.

“I would say 3.6 percent is buffered,” she said, but acknowledged that the risk is uneven around the world.

“There are countries that have been hit hard … European countries have been hit hard by wars and we may see a technical recession,” Gopinath added.

Gopinath said inflation “will be significantly above central bank targets for some time”, adding: “It is important for central bankers around the world to address inflation as a clear and present danger. , that’s what they need in a very powerful way.”

“Financial conditions are probably tightening much faster than we’ve seen. Growth in China is slowing,” she added.

The U.S. Federal Reserve leads the largest central bank and has raised interest rates twice so far this year.

Its second, half a percentage point, was the largest in 22 years. At the upcoming meeting, expect at least two more scales.

“It’s very important for the Fed to look carefully at the data and respond at the scale needed to process incoming data,” Gopinath said.

“So if inflation turns out to be particularly broad … or even higher, they may need to respond more strongly.”

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