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Home›World Trade Organization›Davos: IMF chief says world must ‘spend billions’ to ‘earn trillions’ | Business | Economic and financial news from a German perspective | DW

Davos: IMF chief says world must ‘spend billions’ to ‘earn trillions’ | Business | Economic and financial news from a German perspective | DW

By Tracie Murphy
January 21, 2022
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On Friday, on the final day of the World Economic Forum, two of the world’s most important economic figures shared their views on inflation.

“We are seeing a lot of this super strong recovery that has outstripped supply, which was limited,” European Central Bank (ECB) President Christine Lagarde said during an online panel on the threat of inflation on the global economy.

Consumer prices have increased significantly over the past year in many markets around the world. The Eurozone inflation rate for December 2021 was 5%, a record high for the month. But the ECB has been reluctant to combat rising prices by raising interest rates, with Lagarde insisting that the current high inflation is the product of many factors, including temporary ones.

A combination of monetary and fiscal policies helped avoid mass layoffs during the pandemic and allowed the economy to rebound faster than expected, she said.

“In a way, we are victims of our own success,” Lagarde said.

Meanwhile, wages in Europe have not yet started to climb. “We don’t see this lasting move that would see inflation spiral out of control,” Lagarde said.

“The world must spend billions”

International Monetary Fund (IMF) Managing Director Kristalina Georgieva took a similar stance.

“If we look at the reasons for inflation, it’s not just for central bankers to fight it,” she said.

Changing labor markets and other issues are also fueling higher consumer prices, issues that policymakers in other areas would be better able to address, she said.

The IMF chief stressed that pandemic policy remains a top economic policy for world leaders this year and that protective measures must be taken around the world to avoid continued disruptions.

“My main message is to recognize that the world needs to spend the billions needed to contain COVID in order to gain trillions in production as a result,” she said.

However, not all panel members agreed.

“My fear is that the beast is out of the bottle. I don’t think inflation will be transitory at all,” Brazil’s Economy Minister Paulo Guedes said. “I think these adverse supply shocks will gradually fade. But there is no more arbitrage on the western side to exploit. I think central banks are asleep at the wheel.”

A chance to “reglobalize”

Creating a global trading system more resilient to future shocks was the subject of a panel on Thursday that included World Trade Organization (WTO) Director-General Ngozi Okonjo-Iweala and the CEO of the semi- Intel drivers Pat Gelsinger.

A shortage of semiconductors caused in part by a spike in demand for electronics has led to a major disruption in supply chains around the world during the pandemic.

“What we’ve seen is that we’ve focused on the cost of supply chains and optimizing them and we’ve lost sight of resilience and what I would call a geographically balanced resilient supply chain,” said Gelsinger.

The Intel boss listed the initiatives underway to strengthen the industry’s presence in the United States and Europe. Until the pandemic, these regions relied heavily on computer chip producers in Asia. Friday, Intel announced that it would invest 20 billion dollars (18 billion euros) in a new chip factory in Ohio. The company also plans to announce a new European facility in the near future.

The WTO Director-General took a constructive view of the situation, pointing to the opportunities these “supply chain failures” had presented.

“It’s a chance for us to integrate those parts of the world…that have been left behind and not included in globalization,” Okonjo-Iweala said. She pointed to a greater shift in manufacturing to developing economies like Vietnam, Cambodia and Ethiopia.

“I call it a way of re-globalizing and using globalization and supply chains to address some of the inequality issues,” she said.

The World Economic Forum’s Davos Agenda was a week-long event that brought together leaders from business, government and society to discuss critical issues affecting the world’s population. The virtual event took place in place of the annual meeting in Davos, Switzerland, which had to be postponed to May due to rising COVID cases, fueled by the omicron variant.

Edited by Ashutosh Pandey

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