2023 is going to be tougher on the global economy, International Monetary Fund’s (IMF) chief Kristalina Georgieva has warned on Sunday.
“Why? Because the three big economies – the U.S., EU and China – are all slowing down simultaneously,” Georgieva told CBS Sunday morning news programme Face the Nation.
“We expect one third of the world economy to be in recession,” she stated, adding that even for countries that are not in recession: “It would feel like recession for hundreds of millions of people.”
Earlier in October, the IMF cut its outlook for global economic growth in 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high interest rates engineered by central banks like the U.S. Federal Reserve aimed at bringing down those price pressures.
Since then, China decided to scrap its zero-COVID policy and has embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge. In his first public comments since the change in policy, Chinese President Xi Jinping on Saturday called in a New Year’s address for more effort and unity as the country enters a “new phase.”
“For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” Georgieva noted.
A “bushfire” of expected COVID-19 infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth, added Georgieva, who traveled to China on IMF business last month.
“I was in China last week, in a bubble in a city where there is zero COVID,” she said. “But that is not going to last once people start traveling.” she said.
“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,”
In its October forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2 percent — on par with the fund’s global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4 percent while global activity slowed further.
Georgieva’s remarks, however, suggest another cut to both the China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.
Meanwhile, the IMF official said the U.S. economy is standing apart and may avoid the outright contraction that is likely to afflict as much as a third of the world’s economies.
The “U.S. is most resilient,” Georgieva said, and it “may avoid recession. We see the labour market remaining quite strong.”
But that fact on its own presents a risk because it may hamper the progress the U.S. Fed needs to make in bringing inflation back to its targeted level from the highest levels in four decades touched last year. Inflation showed signs of having passed its peak as 2022 ended, but by the Fed’s preferred measure, it remains nearly three times its 2 percent target.
“This is … a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down,” Georgieva noted.
Last year, in the most aggressive policy tightening since the early 1980s, the U.S. Fed lifted its benchmark policy rate from near zero in March to the current range of 4.25 percent to 4.50 percent, and Fed officials last month projected it will breach the 5 percent mark in 2023, a level not witnessed since 2007.
