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'This is going to be a tough year': IMF head predicts recession for third of world economy

Published on: 01/04/2023


The head of the International Monetary Fund (IMF) Kristalina Georgieva is warning that a third of the world economy will be in recession during 2023.

Speaking Sunday with CBS News, Georgieva laid out an austere look at global economics and finances over the next 12 months, with the impact likely to be felt by even countries not in such downturn.

"Even countries that are not in recession, it would feel like recession for hundreds of millions of people," she said.”

Georgieva and the IMF attribute this to slowing growth from the world’s three largest economies: the United States, the European Union and China.

This is what we see in 2023: for most of the world economy, this is going to be a tough year, tougher than the year we leave behind,” she explained. “Why? Because the three big economies – U.S., EU, China – are all slowing down simultaneously.

And, she adds, “with the economy slowing down globally, we are predicting global growth to go down to 2.7%, maybe even lower.” She also noted that the global economic growth rate dropped from 6% in 2021 to 3.2% in 2022. She emphasized that growth could continue to drop down if central banks get cold feet about inflation-fighting measures.

While the IMF’s managing director did highlight a belief that, out of the big three economies, the US will be most resilient – commenting “the U.S. may avoid the recession, we see the labor market remaining quite strong” – China is seeing strong dips to its economic growth rate due to its internal COVID policies and the EU will feel the hard shocks of Vladimir Putin’s invasion of Ukraine more forcibly over the coming calendar.

“The EU very severely hit by the war in Ukraine. Half of European Union will be in recession next year,” she grimly offered. Georgieva has previously stated that Russia’s war with Ukraine was the single largest negative contributing factor to the global economy and will continue to be so in 2023. “We judge the war in Ukraine to be the single most important negative factor for the world economy this year, most likely also next year,” she told CNBC during the G20 conference in November.

She did note that amidst this, Europe’s efforts to gain energy independence from Putin’s Russia will be valuable for the EU and the global economy in years to come.

As for China, Georgieva observed that China’s economic growth slowed “dramatically” in 2022 due to its “tight, ‘zero-COVID’” policy. “For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth. That has never happened before,” she explained. And with the relaxation of its “zero-COVID” policies last month – following massive, widespread public protests against said policies – the IMF chief is expecting “bushfires” of COVID cases across China over the next three to six months.

China’s cooldown is important to note because, according to Georgieva, in pre-COVID years, “China would deliver 35-40% of global growth.” This is especially impactful on the People’s Republic’s neighbors in Asia. “When I talk to Asian leaders, all of them start with this question: ‘What is going to happen with China? When is China going to return to a level of higher growth?’”

When we look at emerging markets and developing economies, there the picture is even direr,” she went on to add. “Because on top of everything else, they get hit by high interest rates and appreciation of the dollar. For those economies that have high level of debt, this is a devastation.

In a broader assessment of global economics beyond the next year or two, Georgieva made the point that the general predictability of the world economy from pre-pandemic years is not likely to return. “More uncertainty, more overlap of crises wait for us,” she observed. “Rather than crying for the time we had, we have to buckle up and act” in a more precautionary manner.

She did add that the IMF expects inflation to go down by the end of 2023 and that the world economy is much more resilient than they expected – and feared – it would be at the outset of 2022.

Georgieva also took time to dial in on how the “resilience” of the U.S. economy could be a bastion in the face of the increasing global economic uncertainty. She cites the strong labor market but also programs and legislation enacted during the first two years of the Biden administration like the Child Tax Credit, the Inflation Reduction Act and the bipartisan infrastructure bill all add “dynamism” to the U.S. economy and said that these things that are good the states are “good for the world.”

“If resilience of the labor market in the US holds, US would help the world get through a very difficult year,” she said.


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