"Brace yourselves, it's coming…"

She said this is forcing central banks to raise interest rates, while governments are redirecting budget revenues away from subsidies for citizens and toward servicing their own debts.

Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), warned that this winter could be exceptionally difficult in developed countries. In doing so, she invoked the famous line from the series Game of Thrones.

“Do you like Game of Thrones? Winter is coming. We’re going to feel it very strongly in the Northern Hemisphere,” she said in an interview with Liz Hoffman at the “Semafor World Economy” conference in Washington.

Pressure from rising prices

Although winter is literally approaching, she used the season in a figurative sense. Namely, she warned of rising energy prices, particularly those of refined energy products. Natural gas is already 2.5 times more expensive than it was at the beginning of the year, while fuel prices in Europe are at record levels, partly due to the conflict in the Middle East, which has disrupted supply routes, and partly due to the war in Ukraine and the subsequent abandonment of Russian oil and gas because of sanctions, tportal reports.

“We mostly don’t use crude oil; we use refined products. I’m warning you. We will feel pressure from rising prices of refined products, which will increase further. This is a serious warning, because that pressure will push inflation even higher, forcing central banks to ‘tighten their belts’,” Georgieva reiterated, using another phrase well known in this part of the world.

Interest rate hikes

Shutterstock/B.Stefanov

The European Central Bank raised its key interest rates by 0.25 percentage points on September 10, bringing the current refinancing rate for banks to 2.65%, the interest rate on banks’ overnight deposits to 2.5%, and the rate on overnight lending to 2.9%.

It is worth noting that the ECB also raised interest rates by 0.25 percentage points in June, signaling that the fight against inflation using these measures would continue. In outlining its three economic scenarios, the ECB said that, under the worst-case scenario, inflation in the eurozone could reach 4% this year and rise to 5.3% next year.

“We have already seen this happen in a number of countries, including the United States, during normal times that are usually not problematic. However, this is a huge problem because developed countries are carrying historically high levels of debt. Globally, debt levels are even higher than they were after World War II,” Georgieva warned.

Debt repayment, not subsidies

As a result, she stressed, governments will have less room to provide subsidies to citizens, such as the packages of measures through which, for example, the Croatian government co-finances electricity, gas and heating costs, while also capping fuel prices.

“When interest rates rise, the amount paid in interest also increases, and that constrains governments’ efforts to do anything, including helping citizens cope with the high cost of living. We have to prepare for people to be dissatisfied, perhaps even to take to the streets. We also have to prepare for a combination of high interest rates and a large share of government revenues going toward interest payments in order to contain this rise,” the IMF chief concluded.