For much of the world economy, 2023 will be a difficult year as the main drivers of global growth – the United States, Europe and China – all experience a slowdown in activity, the head of the International Monetary Fund said on Sunday.
The new year will be “more difficult than the year we’re leaving behind,” IMF Managing Director Kristalina Georgieva said on CBS’ “Face the Nation” Sunday morning news program.
“Why? Because the big three economies – the US, the EU and China – are slowing down at the same time,” she said.
In October, the IMF cut its outlook for global economic growth in 2023, reflecting continued drag from the war in Ukraine, as well as inflationary pressures and high interest rates created by central banks such as the US Federal Reserve aiming to reduce those price pressures by a fifth .
China has since abandoned its zero-Covid policy and embarked on a chaotic reopening of its economy, although consumers there remain cautious as coronavirus cases rise. In his first public comments since the policy shift, President Xi Jinping on Saturday called in a New Year’s address for more effort and unity as China enters a “new phase”.
“For the first time in 40 years, China’s growth in 2022 is likely to be equal to or below global growth,” Georgieva said.
Also, a “wildfire” of expected COVID infections there in the coming months is likely to hit its economy further this year and hold back both regional and global growth, said Georgieva, who traveled to China on business with the IMF late last month.
“I was in China last week, in a bubble in a city where there is no COVID,” she said. “But that won’t last once people start traveling.”
“The next few months will be difficult for China and the impact on Chinese growth will be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.
In its October forecast, the IMF pegged China’s gross domestic product growth last year at 3.2 percent — on par with the fund’s global outlook for 2022. At the time, it also noted annual growth in China accelerating in 2023 .to 4.4%, while global activity slows further .
Her comments, however, suggest there could be another downgrade to the growth outlook for both China and global growth later this month, when the IMF usually unveils updated forecasts during the World Economic Forum in Davos, Switzerland.
US ECONOMY ‘MOST SUSTAINABLE’
Meanwhile, Georgieva said, the U.S. economy stands apart and may avoid the full contraction that would likely affect a third of the world’s economies.
“The US is the most resilient,” she said, and “may avoid a recession. We see that the labor market remains quite strong.”
But that fact itself is a risk, as it could derail the progress the Fed needs to make to bring US inflation back to its target level from the four-decade highs reached last year. Inflation showed signs of passing its peak in late 2022, but according to the Fed’s preferred measure, it remains nearly three times its 2% target.
“It’s … a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter for a longer time to reduce inflation,” Georgieva said.
Last year, in the most aggressive policy tightening since the early 1980s, the Fed raised its key interest rate from near zero in March to the current range of 4.25% to 4.50%, and Fed officials last month they predicted it would exceed the 5% mark. in 2023, a level not seen since 2007.
Indeed, the US labor market will be a central focus for Fed officials, who would like to see labor demand weaken to dampen price pressures. The first week of the new year brings a slew of key employment data, including Friday’s monthly nonfarm payrolls report, which is expected to show the U.S. economy added 200,000 jobs in December and the unemployment rate remained at 3 .7% – close to the lowest since 1960.
(Except for the headline, this story was not edited by NDTV staff and was published by a syndicated channel.)
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