World warned to prepare for further economic shocks

Spain’s deputy prime minister and the country’s minister for economy and digitalisation has warned the world need to enhance its resilience as the threat of further economic shocks continue.

Nadia Calviño, (pic) was speaking as she chaired the latest meeting of the International Monetary and Financial Committee (IMFC), the policy advisory committee of the Board of Governors of the International Monetary Fund (IMF)

She said the war in Ukraine was still having a major impact on the world’s economy.

“Most members strongly condemned the war in Ukraine and stressed that it is causing immense human suffering and exacerbating existing fragilities in the global economy – constraining growth, increasing inflation, disrupting supply chains, heightening energy and food insecurity, and elevating financial stability risks,” she said. “There were other views and different assessments of the situation and sanctions. Recognizing that the IMFC is not the forum to resolve security issues, we acknowledge that security issues can have significant consequences for the global economy.

“It is essential to uphold international law and the multilateral system that safeguards peace and stability. This includes defending all the Purposes and Principles enshrined in the Charter of the United Nations and adhering to international humanitarian law, including the protection of civilians and infrastructure in armed conflicts. The use or threat of use of nuclear weapons is inadmissible. The peaceful resolution of conflicts, efforts to address crises, as well as diplomacy and dialogue, are vital. Today’s era must not be of war.”

On the economy Calviño said resilience was now vital as the world was still face with major threats.

“The global outlook faces increased uncertainty,” she explained. “So far, the global economy has shown resilience, and the worst macroeconomic outcomes contemplated in the Fall have not materialised. Nevertheless, the growth outlook remains subdued and downside risks have increased. Successive shocks, including Russia’s war against Ukraine, in the context of tightening monetary policy stances needed to bring down inflation, are weighing on the recovery and macro-financial stability, as shown by recent banking and financial-market stress episodes.

“Inflation has moderated somewhat, but underlying price pressures remain sticky. Debt vulnerabilities are elevated, while food and energy insecurity persist, affecting vulnerable countries and people the most. In addition, inequality is increasing, climate shocks are intensifying, and fragmentation risks are rising.”

Calviño  continued: “In this uncertain global context, decisive, well-calibrated, and agile policies tailored to country-specific circumstances are key to entrench a sustainable recovery, safeguard macroeconomic and global financial stability, support the vulnerable, and strengthen resilience.

“Policymakers have taken swift actions to strengthen confidence in the banking system, which remains sound and resilient, supported by the reforms implemented after the 2008-09 global financial crisis. Our priorities are to reduce inflation, maintain financial stability, rebuild fiscal buffers while reinforcing social safety nets to protect the most vulnerable, and bolster inclusive long-term growth.

“In line with their respective mandates, central banks remain strongly committed to achieving price stability and ensuring that inflation expectations stay well anchored, while carefully calibrating the pace of tightening in a data-dependent manner and communicating policy objectives clearly. They will work closely with supervisory and regulatory authorities, both to monitor financial sector developments and deploy appropriate policy instruments within their full toolkit, to ensure financial stability.

“We also stand ready to deploy macroprudential policies to guard against systemic risks and, where relevant, we will address data, supervisory, and regulatory gaps in the bank and in particular the non-bank financial sectors, where further progress in addressing vulnerabilities is important.

“Fiscal policy will continue to reduce elevated debt levels over the medium term, where needed. We will continue to support vulnerable groups from the effects of multiple shocks through well-targeted and temporary measures that preserve price signals, while ensuring fiscal sustainability.

“We will ensure coherence of the overall monetary and fiscal stances, with due consideration to the role of structural policies in easing trade-offs, including, where relevant, growth-enhancing reforms to strengthen labour markets, improve the investment climate, advance economic diversification, and strengthen sustainable, affordable and accessible energy markets. We reiterate our commitment on exchange rates, excessive global imbalances and governance, and our statement on the rules-based trading system, as made in April 2021, reaffirming our commitment to avoid protectionist measures.”

Calviño  concluded: “International cooperation and strengthened multilateralism are essential to bolster global growth, protect the stability of the International Monetary System, address persisting health risks, and accelerate mutually reinforcing efforts toward a green, digital, and inclusive future.

“Our efforts are firmly directed toward overcoming the food crisis, where we will focus on lifting trade restrictions on food and fertilisers, as well as promoting sustainable investment to strengthen production and agricultural value chains in vulnerable economies.

“We will also continue to support vulnerable countries as they address their financing needs and debt vulnerabilities. Mobilising further concessional support for Low-Income Countries is urgent. We reiterate our strong resolve to further accelerate climate action in line with the Paris Agreement and UN Framework Convention on Climate Change (UNFCCC) commitments, taking into account country-specific circumstances.

“We look forward to strong ambition for the 28th meeting of the Conference of the Parties (COP28) to ensure timely, smooth, and just transitions to net zero.”