New York Jan. 2 (U.S.): For much of the global economy, 2023 will be a challenging year as the major engines of global growth — the United States, Europe, and China — see sluggish activity. said the IMF.
The managing director of the International Monetary Fund, Kristalina Georgieva, said on CBS’s “Face the Nation” Sunday morning that the new year will be “tougher than the year we leave behind.”
“Why? Because the three big economies – the United States, the European Union and China – are all slowing down simultaneously,” she said.
In October, the International Monetary Fund lowered its forecast for global economic growth in 2023, reflecting continued pressure from the war in Ukraine as well as inflationary pressures and higher interest rates designed by central banks such as the US Federal Reserve to bring those price pressures to bear. stub, Reuters reports.
Since then, China has scrapped its COVID-free policy and embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge. In his first public remarks since the change in policy, President Xi Jinping on Saturday in his New Year’s address called for greater 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 at or below global growth,” Georgieva said.
Moreover, Georgieva, who traveled to China to work with the International Monetary Fund late last month, said a “wildfire” from expected coronavirus infections there in the coming months would likely hurt its economy this year and affect regional and global growth.
“I was in China last week, in a bubble in a city where there is no coronavirus,” she said. “But that won’t last once people start traveling.”
“In the next two months, it will be difficult for China, the impact on Chinese growth will be negative, the impact on the region will be negative, and the impact on global growth will be negative,” she said.
In its October forecast, the IMF pegged China’s GDP growth last year at 3.2% — on par with the Fund’s global forecast for 2022. At the time, it also saw annual growth in China accelerate in 2023 to 4.4% while global activity slowed. more. .
However, her comments suggest that another downgrade of both China and the world’s growth forecasts could be in the offing later this month when the International Monetary Fund usually reveals its updated forecasts during the World Economic Forum in Davos, Switzerland.
The ‘more resilient’ US economy
Meanwhile, Georgieva said, the US economy stands apart and may avoid an outright downturn that could potentially hit up to a third of the world’s economies.
She said that “the US is the most resilient, and may avoid a recession. We see the labor market is still very strong.”
But that fact in and of itself presents a risk as it could impede the progress the Fed needs to make in returning US inflation to its target level from the four-decade highs it touched last year. Inflation has shown signs of passing its peak as 2022 ends, but, according to the Fed’s preferred metric, it is still nearly three times its 2% target.
“This is … a mixed blessing because if the labor market is too strong, the Fed may have to keep interest rates tighter for longer to bring down inflation,” Georgieva said.
Last year, in the most aggressive policy tightening since the early 1980s, the Fed raised its benchmark policy rate from near zero in March to the current range of 4.25% to 4.50%, and Fed officials predicted last month that it would breach the 5% mark. in 2023, a level not seen since 2007.
In fact, the US labor market will be a central focus for Fed officials who want to see labor demand slow to help reduce price pressures. The first week of the new year brings a slew of key data on the employment front, including Friday’s monthly nonfarm payrolls report, which is expected to show that the US economy minted another 200,000 jobs in December and the unemployment rate remained at 3.7% – close to from the lowest level since the 1960s.