IMF Warns of Tough Year Ahead for World Economy Citing Slowdown in US, EU, China – The head of the International Monetary Fund has predicted that 2023 will be a tough year for a large portion of the global economy, as the United States, Europe, and China all face a downturn in economic activity. IMF managing director Kristalina Georgieva stated on CBS’s Face the Nation on Sunday morning that the new year will be “tougher than the year we leave behind.”
“Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously,” she said. “We expect one-third of the world economy to be in recession. Even countries that are not in recession, it would feel like recession for hundreds of millions of people,” she added. 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 US Federal Reserve aimed at bringing those price pressures to heel.
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China, the world’s second-largest economy, is expected to develop at or below the global average for the first time in 40 years as a result of the rise in Covid-19 cases following the dissolution of its ultra-strict zero-Covid policy, as stated by Georgieva. “For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” Georgieva said. Moreover, a “bushfire” of expected Covid infections there in the months ahead are likely to further hit its economy and drag on both regional and global growth, said Georgieva, who traveled to China on IMF business late last month.
“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,” she said. Meanwhile, Georgieva said, the US 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 “US is most resilient,” she said, and it “may avoid recession. We see the labour market remaining quite strong.”
“This is a mixed blessing because if the labour market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down,” Georgieva said. The US labor market will be a major focus for Federal Reserve officials, who would want to see labor demand decline in order to reduce inflationary pressures. Friday’s monthly nonfarm payrolls report is likely to reveal that the US economy created an additional 200,000 jobs in December and that the unemployment rate remained at 3.7% – around the lowest level since the 1960s.
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