For most of the global economy, 2023 is shaping up to be a challenging year as the main engines of global growth – the US, Europe, and China – are all experiencing weaker activity, the head of the International Monetary Fund said on Sunday. IMF Managing Director Kristalina Georgieva said on CBS’s Sunday morning news program “Face the Nation” that the new year is “going to be more difficult than any year we have left behind.”
“Why? Because the three largest economies – the US, the EU, and China – are slowing down at the same time,” She said.
In October, the IMF lowered its outlook for global economic growth in 2023, due to the ongoing drag from the war in Ukraine, as well as inflationary pressures and higher interest rates engineered by central banks such as the US Federal Reserve. Reflects interest rates intended to bring about these price pressures.
Since then, China has ended its zero-COVID policy and begun reopening its economy, although consumers there remain wary of rising coronavirus cases. In his first public comments since the policy shift, President Xi Jinping called for more efforts and unity in a New Year’s address on Saturday as China enters a “new phase”.
“For the first time in 40 years, China’s growth in 2022 could match or lag global growth,” Georgieva said.
Additionally, a “bushfire” of COVID infections expected there in the coming months could further affect its economy this year and drag down both regional and global growth, said Georgieva, who late last month Did you travel to China on IMF business?
“I was in China last week, in a bubble of a city where there is zero Covid,” she said. “But once people start traveling, it won’t stop.”
“The next couple of 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 Chinese gross domestic product growth at 3.2 percent last year — the same as the fund’s global outlook for 2022.
However, her comments suggested that another cut in both China and global growth could come later this month when the IMF would normally unveil its latest forecasts during the World Economic Forum in Davos, Switzerland.
U.S. ECONOMY ‘MOST RESILIENT’
Meanwhile, Georgieva said, the U.S. economy stands apart and may be able to avoid the full contraction that is expected to hit a third of the world’s economies.
“The United States is the most resilient, and it can survive a recession. We see that the labor market is quite strong,” She said. But that fact presents a risk in itself because it could block the progress the Fed needs to bring back U.S. inflation.
“It’s a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter to reduce inflation,” Georgieva said.
Last year, in the tightest tightening since the early 1980s, the Fed raised its benchmark policy rate from near zero in March to 4.25% to 4.50%, and Fed officials last month estimated that it would breach the 5% mark in 2023, a level not seen since 2007. In fact, the U.S. job market will be a central focus for Fed officials who want to see a reduction in labor demand to help ease price pressures. The first week of the New Year brings a flurry of key data on the employment front, including Friday’s monthly nonfarm payrolls report, which showed the U.S. economy added 200,000 jobs in December. And the unemployment rate remained at a near-record low of 3.7 percent since the 1960s.
