The world’s economic prospects are dimmer than at any point in recent decades, IMF Managing Director Kristalina Georgieva warned at the G20 summit in Brazil.
The IMF has projected a modest 3.3 per cent global growth rate for 2025, reflecting ongoing challenges that threaten to undermine economic stability and exacerbate inequality.
Georgieva's remarks point to a sobering reality: the global economy remains stuck in low gear, potentially derailing efforts to combat poverty and inequality.
This downturn poses a significant threat to Kenya, which is grappling with its own economic challenges. The country's Gross Domestic Product (GDP) growth is expected to decelerate to 5 per cent in 2024, down from 5.3 per cent in 2023, before rebounding to 5.3%per cent in 2025.
With growth forecasts languishing well below pre-pandemic averages, the IMF chief cautioned that the world is grappling with an unprecedented economic slowdown that could worsen income disparity.
The IMF’s latest World Economic Outlook paints a grim picture. Global growth is set to hover around 3.2 per cent this year and slightly increase to 3.3 per cent in 2025, starkly below the 3.8 per cent average observed from the turn of the century until the pandemic.
This stagnation, Georgieva noted, is far more detrimental than previous recessions, as prolonged periods of economic inertia can push up income inequality by nearly 20 per cent.
“Periods of stagnation are not just a temporary setback,” Georgieva stated. “They lead to increased structural unemployment and reduced wage growth, which in turn exacerbates the income gap between the wealthy and the impoverished.”
The IMF's analysis reveals that sluggish job creation and wage stagnation during economic downturns significantly widen income disparities.
This growing inequality could reverse decades of progress and ignite discontent towards economic integration and technological advancements, which have previously driven growth and development.
In response, Georgieva advocated for targeted policy measures to reverse this trend. She emphasised the need for reforms to spur medium-term growth, including promoting competition, improving access to finance, and expanding the labour force. She stated, “Fiscal policies should be designed to support the most vulnerable members of society, ensuring that economic gains are more evenly distributed.”
Moreover, Georgieva highlighted the critical importance of a robust global financial safety net to aid countries facing economic hardship. This safety net, she argued, is essential to shield nations from economic shocks and to support sustainable development.
Georgieva suggested that a gradual, people-focused fiscal approach could mitigate fiscal risks while supporting growth and reducing inequality. Tax reforms, including more effective taxation of capital income and property, could provide additional revenue without overly burdening the most vulnerable.
Georgieva also stressed the need for improved governance to restore public trust in tax systems. “People must have confidence that their taxes will fund essential public services rather than enrich those in power,” she remarked. Adding that enhanced transparency and anti-corruption measures are vital to ensuring that tax revenues are used effectively.
