The risk of global recession is "low" despite the Russia-Ukraine war and the resultant supply chain shock, said Gita Gopinath, First Deputy Managing Director of the International Monetary Fund (IMF), while speaking to CNBC TV18 on May 23.
At the same time; however, the risk of individual countries entering into recession is "higher", Gopinath stressed, pointing toward the soaring inflation, high crude oil prices, and the outflow of capital from emerging economies.
The "positive news" in the current economic crisis is that, unlike the 2008 recession, "labour market has recovered sharply, especially in advanced economies", Gopinath explained.
"At the same time, inflation has gone up and growth is slowing down across the world because of the war in Ukraine and the lockdowns in China," she added.
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"For global economy, we are projecting a 3.6 percent growth. Risk of global procession is lower as compared to individual countries going into recession," the top IMF official said.
Interest rates, which have gone up in most parts of the world in order to bring down the inflation, "is likely to be raised further", Gopinath told CNBC TV18 in Switzerland's Davos, where politicians and business leaders have gathered for the first physical summit of the World Economic Forum (WEF) in over two years.
India, which has witnessed a steep surge in both retail and wholesale inflation, has raised the interest rates by 40 basis points.
According to Gopinath, food inflation is of "key concern". "In terms of livelihood, food inflation will have a larger hit," she said, pointing toward the scenario in Sub-Saharan African countries where food accounts for 40 percent of the total consumption.
The surge in food inflation has come as a lethal shock following the rise in crude oil prices, she said. "Food inflation is going to be even higher...Last year oil prices went up by 60 percent compared to 2020. This year our projection for the oil price is another 60 percent. This is one shock after another."
Although a global recession is unlikely, the period to come will remain challenging, Gopinath noted. "Predominantly, growth is on the downside and the risk to inflation is on the upside," she added.
"We are seeing countries struggling with higher prices for food and energy. There are shortages of many products around the globe."
"Volatility is what we have to live with, countries that have the capacity to increase energy and food supplies should do so to help the world to cope with the challenge," the IMF Deputy MD further stated.
On the surge in capital outflows from China and India, Gopinath said the latter is better positioned to handle this volatility due to its $600 billion of reserves, which could handle around 8 months of imports. "India's external debt is 20 percent of the GDP, which again puts it in a better position."
On New Delhi announcing a fresh cut in duties to reduce retail cost of petrol and diesel, Gopinath said many countries have been compelled to subsidise fuel in a bid to tack the inflation. In India's case, the revenue has increased which provides the country "some room" to introduce such measures.
Subsidies, however, should be channelised to help those who are vulnerable, she said, adding that "targeted transfers" should be preferred.
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