MICHEL MARTIN, HOST:
The International Monetary Fund monitors the economies of its 191 member countries and makes policies to try to stabilize them. We wanted to hear more about this IMF prediction of slower global economic growth and higher inflation and the effect the Iran war is having, so we turned to a former chief economist at the IMF, Simon Johnson. He is now a professor of economics at MIT and a Nobel laureate. Welcome, Professor Johnson. Thanks for joining us.
SIMON JOHNSON: My pleasure.
MARTIN: So having worked on reports like this before, what do you make of the IMF's outlook?
JOHNSON: Well, it seems entirely reasonable. I mean, this is a big shock to energy prices. Energy prices are an important element of economies around the world, as your reporter just said. So I'm afraid a lot of countries are suffering a deceleration of growth or even some negative growth.
MARTIN: So the IMF has revised its projection for global growth downward by 0.2%, with a modest rise in inflation. That seems like a small variation, so why does it still cause such concern?
JOHNSON: Well, there's a big impact on poorer people, for whom energy costs are a really important part directly of their budgets and also through the impact on food prices. There's an impact on food production through the price of diesel and also because there's an impact on fertilizer. So these prices - the impact of higher energy prices is really felt by a lot of people pretty much everywhere in the world.
MARTIN: So the IMF's baseline forecast assumes a war of limited duration, intensity and scope - their words. If the war is longer and of greater intensity and scope, what does that look like?
JOHNSON: Well, the IMF also put out two other scenarios. One I think they called severe, and the other is very severe. And it's a further negative impact on growth, down to 2.5% or 2% in terms of the headline numbers they use. That would be really very painful, particularly for, I would say, 100 million poorer people around the world. They would suffer dramatically from this kind of impact.
MARTIN: But what does that look like? Can you give us a sense of what that might look like? Are we talking about food insecurity? Are we talking about massive unemployment? Can you just give me - kind of paint a picture for me?
JOHNSON: I think food insecurity is where you would see it. I think farmers protesting fuel prices is where you would see it. I think you would see government countermeasures, to the extent they can. Some governments may run out of money in order to fund those countermeasures. So it's hard to say exactly what the sequence would be, but there will be, I'm afraid, quite a bit of drama about that.
MARTIN: And I noted that China's growth forecast is taking a haircut. Why is that?
JOHNSON: Well, China's a big importer. They import about 10 million barrels of oil a day. They're very exposed to what happens to world oil prices. They also buy quite a lot of oil directly from Iran, and that's under blockade currently. So these things have an effect on every economy. China is an energy-intensive, manufacturing-export-oriented economy.
MARTIN: And I mentioned that the IMF tries to stabilize economies. Is there anything that the IMF or any other entity could do to ease the effects of this war?
JOHNSON: Yes. I think quite a few countries will be asking the IMF for financial assistance. Some of that they can receive through existing programs. They may need to set up a - if the war goes on, a new facility, a new way of lending to countries. A lot of people from these countries are in Washington, D.C., this week for a scheduled spring meeting of the IMF and the World Bank, and these discussions are already going on in private, I would say. So, yes, the IMF will be asking what it can do to help, and people will be asking the IMF if it can help - if it could help more and on better terms.
MARTIN: Can you say just more about what those better terms might be? Would that be, say, I don't know, forgoing debt repayments for a period of time or something like that? Can you just paint a picture for me? What could that relief look like?
JOHNSON: Well, it depends very much on the country. But in general, you're asking for - to borrow more money, relative to the size of your economy, for a longer period of time and at a lower interest rate. So it's very much like when you want to borrow money as an individual. The terms of those loans are going to be negotiated with the IMF, and the U.S. has a disproportionate influence at the IMF. So the American attitude towards providing funding to help buffer countries through this crisis caused by American action in the Middle East - that's going to be very interesting.
MARTIN: That is going to be interesting to watch. So - and before we let you go, given this revised projection, how does the United States fare, in the IMF's view?
JOHNSON: The United States doesn't do too badly. We are an energy-exporting country net. There's obviously big distributional effects. So increase in price of gasoline and diesel affects our farmers and our commuters, just like it does around the world. There's one world price for oil in particular, so you'll see it in gasoline prices and in diesel prices. Our liquefied natural gas market is quite segmented because you can't move LNG so easily. So you won't see it that much in gas, natural gas prices, but you'll feel it in fuel, and fuel filters through to the rest of the economy. Key question is, does that affect inflation expectations? Does the Federal Reserve need to make a move? Does it need to raise interest rates? That remains to be seen.
MARTIN: Simon Johnson is a professor of economics at MIT and one of three winners of the 2024 Nobel Prize in Economics. Professor Johnson, thank you so much.
JOHNSON: Thank you. Transcript provided by NPR, Copyright NPR.
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