For most of the world’s economies, 2023 is set to be a difficult year as the main engines of global growth – the US, Europe and China – all experience weaker activity, the head of the International Monetary Fund said on Sunday.
IMF Managing Director Kristalina Georgieva said on the CBS Sunday morning news program “Face the Nation” that the new year is going to be “tougher than any year we’ve had.”
“Why? Because the three big economies – the US, the EU and China – are slowing down at the same time,” he 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 higher interest rates by central banks such as the US Federal Reserve, which aim to bring down that price pressure. ankle
Since then, China has scrapped its zero-covid policy and begun a chaotic relaunch of its economy, although consumers there remain cautious as coronavirus cases rise. In his first public comments since the policy shift, President Xi Jinping called for more effort and unity in a New Year’s address on Saturday as China enters a “new stage”.
“For the first time in 40 years, China’s growth in 2022 could be at or below global growth,” Georgieva said.
Moreover, a “bushfire” of Covid infections expected there in the coming months will likely hurt its economy further this year and drag down both regional and global growth, said Georgieva, who traveled to China on IMF business late last month.
“I was in China last week, in a bubble of a city with zero covid,” he said. “But once people start traveling it won’t last.”
“The next few months, it 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,” he said.
In its October forecast, the IMF pegged China’s gross domestic product growth at 3.2% last year – on par with the fund’s global outlook for 2022. At the time, it accelerated China’s annual growth to 4.4% in 2023 while global activity slowed further. .
His comments, however, suggest another cut to both China and the global growth outlook later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.
US economy ‘most resilient’
Meanwhile, Georgieva said, the U.S. economy stands apart and could avoid a full-blown contraction that could affect as much as a third of the world’s economy.
“The United States is the most resilient,” he said, and it can “avoid a recession. We see the labor market in pretty strong shape.”
But that fact itself presents a risk because it could hinder the progress the Fed needs to make to bring U.S. inflation back to its target from the four-decade high it hit last year. Inflation shows signs of peaking as 2022 ends, but remains around three times its 2% target, according to the Fed’s preferred measure.
“It’s … a mixed blessing because if the labor market is very strong, the Fed may have to hold interest rates longer to reduce inflation,” Georgieva said.
Last year, in the most aggressive policy tightening since the early 1980s, the Fed lifted its benchmark policy rate in March from near zero to the current 4.25% to 4.50%, and Fed officials last month estimated it would breach the 5% mark in 2023. , a level not seen since 2007.
Indeed, the US jobs market will be a central focus for Fed officials who want to ease labor demand to help ease price pressures. The first week of the new year brings a raft of important data on the employment front, including Friday’s monthly non-farm payrolls report, which will show the US economy added another 200,000 jobs in December and the unemployment rate remained at 3.7%. lowest since 1960.
(Except for the headline, this story was not edited by NDTV staff and appeared on a syndicated feed.)
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