Despite the widespread concern about the impending recession in the global economy, which was transferred to the discussion at the World Economic Forum in Davos, the head of the IMF, Kristalina Georgieva, spoke about the prospects with restrained optimism. As he noted from the Davos podium, the economic outlook is less ominous now than it was a couple of months ago. However, he was quick to point out that the war in Ukraine still poses a “terrible risk” to confidence, especially in Europe.

Speaking at the annual meeting of the World Economic Forum (WEF), the head of the IMF stressed that, in general, China’s ability to stimulate its economy and growth has improved after the lifting of restrictive measures against the pandemic. After all, he cited new estimates from the IMF, which, as he pointed out, now predicts that the growth rate of the Chinese economy this year will be 4.4%. However, she clarified that she does not see a “drastic improvement” in the current IMF forecast of 2.7% global growth in 2023.

Lagarde “sees” inflationary pressures from China’s restart.

As for China’s restart and its implications for the global economy, ECB President Christine Lagarde did not seem to share Ms Georgieva’s optimism. Ms Lagarde, by contrast, opined that China’s reset could accelerate global inflationary pressures. Opening up China after debilitating pandemic-related restrictions is likely to exacerbate global inflationary pressures as the world’s second-largest economy boosts global demand for commodities, the ECB president said. Speaking from the podium in Davos, Ms. Lagarde predicted that “there will be restrictions, inflationary pressures will increase, based on this additional demand for goods and, in particular, for energy.” Notably, China is the second most energy-intensive economy in the world after the US, and restarting it is sure to boost demand for hydrocarbons. Since the announcement of the lifting of extreme restrictive measures, the price of oil has recovered.

Ms. Lagarde made no secret of her concerns about persistently high inflation during the forum’s discussions. A day earlier, he stressed that as long as inflation remains at a high level, the ECB is not going to change its position on the transition to a restrictive monetary policy with an aggressive increase in interest rates. He even warned the markets that the Bank of the Eurozone will continue to increase the cost of borrowing. In short, he will keep interest rates at a level that will limit economic growth until eurozone inflation falls to the 2% target. Speaking at a World Economic Forum panel, Ms. Lagarde stressed that “we will stay on this path until we can return to 2 percent inflation in time.” He also pointed out that the markets had misjudged the bank’s more lenient stance on rate hikes and advised them to “reconsider.”