The “fragmentation” of the international economic system was the main topic of discussion at its meetings. International Monetary Fund last week in Washington. A process that is definitely influenced or occurs due to known geopolitical upheavals. This situation is leading to a restructuring of supply chains at the international level towards less efficient models, with the result that the negative impact on prices and inflation continues to be strong. All of this is happening at a time when monetary policy pursued by central banks is aimed at restricting liquidity and spending in order to quickly de-escalate prices. Of course, this process is not without consequences, which have manifested themselves in the relatively recent turmoil in the international banking system. There are also additional structural factors, such as demographics, a strong labor market, or even energy prices, that hinder the rapid effectiveness of monetary policy, which, however, requires a long period of months to show results.

Another question is whether and will fiscal policy be supportive, i.e. restrictive, in an attempt to lower prices with the least negative impact possible. As highlighted in the relevant discussions, there is uncertainty as to whether, in such a challenging environment, inflation can be brought down relatively quickly to close to 2% without much negative impact on output, employment and financial system stability. However, the monetary policy transmission is expected to be helped by the relative tightening of credit, already driven by volatility and uncertainty in the banking system.

In any case, the de-escalation of prices, which is already visible, is expected to continue, despite the difficulties encountered, in particular, in the de-escalation of “structural inflation”. And for food prices that continue to rise at double digit rates, we should probably wait for a new season after the summer when we have the appropriate goods with new crops. However, international demand remains strong and the resilience of the European and US economies has been remarkable so far.

The U.S. labor market has seen only a very slight weakening of late, with most agency estimates now pointing to nothing more than a small, shallow recession by the end of the year. In particular, the “service economy” continues to grow steadily, which also favors the Greek economy.

In addition to fragmentation and geopolitics, the meeting was dominated by the issue of China. In the closed-door debate, unease was palpable, despite the fact that China’s central bank chief at the Peterson Institute last Saturday expressed his belief in market forces, surprising most listeners. However, at a time when China seems to be confidently returning to the center of economic attention, there seems to be a belief in the US that the Chinese leadership is not in the mood to cooperate on a number of issues that affect both economics and politics.

It does not seem that the so-called American “cooperative competition” is the solution even in the context of economic differences or political issues between Western countries, especially the US, and China. And that’s because China probably thinks time is on its side.

Mr. Theodoros Pelagidis is Deputy Governor of the Ministry of Finance and Professor of Economic Analysis at the University of Piraeus.