Central bankers should continue to tighten monetary policy and politicians should resist pressure to spend public money in a way that could feed inflation, the International Monetary Fund’s Managing Director said Tuesday.
“Fighting inflation is the overwhelming priority everywhere,” Kristalina Georgieva said at an event by Bruegel, a Brussels-based think tank, adding that “fiscal policy has to provide cushions for the most vulnerable people … there will be pressure to do more for everybody, and that pressure needs to be resisted.”
The IMF has repeatedly downgraded growth projections for this year and next. The world economy shrank by 2 percent in the second quarter compared to the previous one, Georgieva said, adding: “This is a very difficult year and the next one will very likely be harder.”
Georgieva’s remarks come as EU countries brace for a difficult winter ahead, with energy and gas prices at record highs, fanned by Russia’s decision to cut off gas supplies to Europe indefinitely.
Protests have started popping up in the Czech Republic, Poland and other places demanding lower prices, and EU governments have been ladling out payouts and tax breaks to limit public discontent, spending in many cases around 2 percent of their GDP.
But that won’t help, according to Georgieva: “If we’re going for a very generous sort of support which the populations in many countries are demanding and putting pressures on politician, then fiscal policy becomes the enemy of monetary policy, it actually makes the fight against inflation much more difficult,” she said.
