IMF strategy chief calls for price stability, credibility in shock-prone world
IMF Strategy Chief Highlights Economic Challenges and Policy Responses
By Andrea Shalal and Doina Chiacu
WASHINGTON, July 15 (Reuters) - The International Monetary Fund's strategy chief urged government officials on Wednesday to focus on medium-term fiscal frameworks and maintain a firm commitment to price stability in the current shock-prone world.
Global Shocks and Economic Uncertainty
Christian Mumssen, who took over as the fund's director of strategy in October, said the global economy had been rocked in recent years by a rapid succession of major shocks, including the coronavirus pandemic, cost-of-living crises, trade frictions and wars in Ukraine and the Middle East,
"Technologically, artificial intelligence and digital finance are advancing at a speed few of us anticipated. And geopolitically, the post-war global order is giving way to a more fragmented, multipolar world," he said in remarks prepared for an event at the Atlantic Council.
"The global economy has proved remarkably resilient in the face of these forces. But the sheer scale of what is under way creates an exceptionally high degree of uncertainty — and we should expect the unexpected."
Risks from Digital Markets and Non-Bank Financial Institutions
Given the scale and pace of change, with digital markets and the growth of non-bank financial institutions introducing new sources of risk, it was more important than ever that countries ensure stability and credibility in fiscal and monetary policy.
"When shocks throw an economy off course, it is critical to preserve a credible medium-term fiscal framework and a firm commitment to price stability," Mumssen said.
Policy Recommendations for Governments
He said institutions and governments also needed to lean more on scenarios to game out how they could respond to rapidly changing conditions.
Governments should pay close attention to sound public finances and debt, limiting inflation, and encouraging jobs and growth, he said, adding that price stability is likely to be threatened by frequent supply disruptions.
IMF Support and Collaboration with Governments
He said the IMF was working with governments to enhance their ability to withstand supply shocks and global political tensions as a hedge against widening uncertainty, including weather-related shocks to their economies.
Impact of Geopolitical Events on Global Growth
Asked if the resumption of military strikes in the Middle East would force the IMF to revise its forecast for 3% global growth in 2026, a drop of 0.5 percentage point from 2025, Mumssen said it was very difficult to say where the global lender's October forecast would land.
Offsetting forces that had prevented the war in the Middle East from hitting global growth harder thus far would remain in effect, but a very long disruption to energy supplies would clearly affect the outlook, he said.
The IMF in July returned to offering a baseline forecast after opting for three scenarios in April, one of which assumed a longer-duration Middle East war with growth of just 2%.
Technological Innovation and Inclusive Growth
Mumssen also said it was critical to address fast-moving technical innovations, including to ensure the rapid AI transformation translates to inclusive growth.
The big difference between the current global financial situation and earlier crises is that major transformations are happening at the same time, he said.
IMF Policy Reviews and Reforms
He said the IMF was working on five major reviews of its policies, including how it assesses countries' economies, and how it structures new loans, with more focus on contingency planning and "fewer, more targeted and deeper reforms."
The IMF is also assessing the debt sustainability of low-income countries; sharpening its ability to warn about risks to the financial sector; and upgrading its assessment of global trade and current account imbalances, Mumssen said.
He encouraged countries to work with the fund on solutions.
Challenges to International Cooperation
"The problem is: just when massive structural challenges and a new technological revolution would call for greater international cooperation, the global governance system is fragmenting," Mumssen added.
(Reporting by Andrea Shalal and Doina Chiacu; Editing by Chizu Nomiyama)
