This year, a third of the global economy will be in recession. According to the head of the International Monetary Fund (IMF).
Kristalina Georgieva stated that 2023 will be “tougher” than last year. As the economies of the United States, European Union, and China slump.
It occurs at a time when the war in Ukraine, rising prices, higher interest rates. And the expansion of Covid in China are exerting pressure on the global economy.
In October, the IMF lowered its forecast for global economic growth in 2023.
On the CBS news show Face the Nation, Ms. Georgieva stated, “We anticipate that one-third of the world economy will be in recession.”
“Even in nations that are not in recession, hundreds of millions of people will experience recession-like conditions,” she noted.
Katrina Ell, an economist with Moody’s Analytics in Sydney.
“While our baseline does not predict a worldwide recession in the coming year, the likelihood of one is uncomfortably high. However, Europe will not avoid recession, and the United States is on the edge “She stated,
In October, the IMF lowered its forecast for global economic growth in 2023, citing the war in Ukraine and increased interest rates. As central banks around the world strive to rein in inflation.
China has since abandoned its zero-Covid stance and begun to reopen its economy. Despite the massive rise of coronavirus infections in the country.
Ms. Georgieva cautioned that China, the second-largest economy in the world, would suffer a challenging start to 2023.
She stated, “The next several months will be difficult for China. And the impact on the Chinese economy will be negative, as will the impact on the region and world growth.”
The IMF is a global organization with 190 member nations. They collaborate to stabilize the world economy. One of its primary functions is to serve as an economic early warning system.
The globe will be alarmed by Ms. Georgieva’s remarks, particularly in Asia, which experienced a terrible year in 2022.
The war in Ukraine is largely to blame for the region’s soaring inflation But increased interest rates have also affected individuals and businesses.
The data provided over the weekend indicated that the Chinese economy will be sluggish by the end of 2022.
As coronavirus infections spread throughout the country’s factories, the official purchasing managers’ index (PMI) for December revealed that China’s manufacturing activity dropped for the third consecutive month and at the fastest rate in nearly three years.
According to a poll conducted by one of the country’s leading independent property research businesses. China Index Academy, home prices in 100 cities decreased for the sixth consecutive month in August.
As China enters what he termed a “new chapter,” President Xi Jinping called for greater effort. And unity in his first public remarks since the policy shift.
The recession in the United States has also reduced demand for products manufactured in China and other Asian nations, like Thailand and Vietnam.
In addition, higher interest rates make borrowing more expensive. Therefore corporations may opt not to invest in business expansion for these two reasons.
Lack of growth can cause investors to withdraw funds from an economy, leaving governments. Especially poorer ones, with less money to pay for essential imports such as food and energy.
During these types of economic slowdowns, a currency may lose value relative to those of more wealthy economies, exacerbating the problem.
The effect of increasing interest rates on loans extends to government economies. Particularly emerging markets that may struggle to repay their obligations.
The Asia-Pacific region has relied on China as a significant trading partner and source of economic support for decades.
Now Asian economies must contend with the permanent economic consequences of China’s pandemic response.
As Beijing ceases zero-Covid, production of products such as Tesla electric automobiles and Apple iPhones may resume.
Inflation appeared to have peaked, but increasing demand for commodities like oil and iron ore is likely to cause future price increases.
“The easing of domestic Covid limitations in China is not a panacea. At least until the March quarter, the changeover would be difficult and a cause of volatility “Ms. Ell added.
Bill Blaine, chief strategist and head of alternative assets at Shard Capital, called the IMF’s warning a “wake-up call.”
“Even while labor markets around the world are reasonably robust, the type of jobs being produced are not always high-paying, and we’re going to have a recession, interest rates will not decrease as quickly as the markets expect,” he told.
This will have a multitude of repercussions that will keep markets on edge for at least the first half of 2023.
