IMF warns – World has run out of firepower to fight next recession!

David Lipton, the deputy director of the Washington-based International Monetary Fund, delivered a stark warning about the depleted power of central banks and governments to combat another sharp economic shock.

“ The bottom line is this: the tools used to confront the Global Financial Crisis may not be available or may not be as potent next time. The space for additional monetary policy accommodation will surely be more constrained; fiscal resources may not be as available in many countries; and political resistance to bailouts may be greater because many people feel that those who brought about the last crisis did not shoulder their share of the burden.”

So, in short, the emergency tool kit that helped to pull the global economy out of the Great Financial Crisis might not work a second time, the world’s lender of last resort has warned.

Global Challenges

Obviously, this is not a matter for Europe alone. The U.S. needs to get its fiscal house in order as well. U.S.-China trade tensions pose the largest risk to global stability. Beijing needs to continue its shift toward high-quality growth and should support a sustainable globalization. All emerging markets should face up to external shocks and volatile capital flows.

While most baseline forecasts show some recovery ahead for Europe, many have been surprised by the size and pace of the recent deceleration. So, it is important to acknowledge the continuing uncertainty about the coming year, including with the crucial issue of Brexit still unresolved.

Each country should act now to strengthen their defenses ahead of a potential downturn. That includes those who have not addressed glaring vulnerabilities, most notably Italy. A serious recession could be very damaging for these countries, because they will be shown to be ill prepared. Their weaknesses could present a serious setback for Europe’s goal of convergence—of standards of living, productivity, of national well-being.

On the other hand, there are countries that are in a strong position to face a downturn—most notably Germany.

He warned that many countries need to drive reforms to deal with the emerging risks.