Largest economy a challenge to global economic governance

In a curtain-raiser speech ahead of the 2022 annual meetings of the International Monetary Fund and the World Bank on Thursday, IMF Managing Director Kristalina Georgieva warned of the global economy undergoing a "fundamental shift", saying the IMF has downgraded its global economic growth projections thrice since last October and will cut the 2023 economic forecast again in its updated World Economic Outlook.

Her remarks came a day after the World Trade Organization said the world economy has been hit by multiple shocks, including tighter monetary policy in the United States, and global trade is expected to lose momentum in the second half of 2022 and witness a sharp decline in 2023. Earlier on Oct 3, the United Nations Conference on Trade and Development said monetary and fiscal policies in advanced economies may plunge the global economy into recession and prolonged stagnation.

That several international agencies have warned of a global recession reflects the widening negative spillover impacts of the US and other advanced economies tightening policies, the COVID-19 pandemic and the Ukraine crisis. The "fundamental shift" referred to by the IMF managing director means the global economy is shifting from relatively predictable to more fragile.

At present, emerging market and developing economies, as well as some developed economies, have experienced rising inflation because of the ultra-loose monetary policy of the US Federal Reserve, and capital outflow and debt crisis caused by the US' aggressive interest rate hikes. Rising interest rates have set off a chain reaction of debt problems across countries. According to IMF data, more than a quarter of emerging economies have either seen their bond prices plunge or have defaulted on their debt, while more than 60 percent of low-income countries are in or will be in debt trouble. Interventions by countries to support their currencies have also led to a sharp fall in global foreign exchange reserves.

Faced with the extreme impact of its policy changes on the world economy, the US has turned a deaf ear and talked little about the spillover effects. The US has never stopped politicizing and weaponizing the world economy, taking advantage of its dominant position in the international financial and monetary system to impose arbitrary sanctions upon others.

That the world's largest developed economy has become a source of turmoil in the world economy proves to be the biggest challenge to global economic governance.