Jan 1 (Reuters) – 2023 will be a tough year for much of the world economy as the main engines of global growth – the United States, Europe and China – all experience flagging activity, the head of the International Monetary Fund said on Sunday.
The new year will be “tougher than the year we are leaving behind,” IMF Executive Director Kristalina Georgieva told CBS’s Face the Nation news program Sunday morning.
“Why? Because the big three economies — the US, the EU and China — are all slowing down at the same time,” she said.
In October, the IMF lowered its forecast for global economic growth in 2023, reflecting the ongoing burden of the war in Ukraine, as well as inflationary pressures and high interest rates that central banks like the US Federal Reserve have been devising to alleviate those price pressures Hoe.
China has since scrapped its zero-COVID policy and embarked on a chaotic reopening of its economy, though consumers there remain cautious amid rising coronavirus cases. In his first public statements since the policy change, President Xi Jinping called for greater effort and unity as China enters a “new phase” in a New Year’s address on Saturday.
“For the first time in 40 years, China’s growth in 2022 is likely to match or lag global growth,” Georgieva said.
In addition, a “bushfire” of expected COVID infections there in the coming months is likely to further hit the economy this year, hurting both regional and global growth, said Georgieva, who traveled to China for IMF business 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 travelling.”
“The next few months would be tough for China, and the impact on Chinese growth would be negative, the impact on the region would be negative, the impact on global growth would be negative,” she said.
In its October forecast, the IMF put China’s gross domestic product growth at 3.2% last year — in line with the fund’s global outlook for 2022. At the time, he also saw that China’s annual growth would accelerate to 4.4% in 2023, while global activity continued to slow.
However, their comments suggest that a further cut in both China’s and the global economy’s growth prospects could be on the horizon later this month when the IMF typically announces updated forecasts during the World Economic Forum in Davos, Switzerland.
US ECONOMY ‘MOST RESILIENT’
Meanwhile, Georgieva said, the US economy is on the sidelines and could avoid the outright contraction that is likely to afflict up to a third of the world’s economies.
The “US is the most resilient,” she said, and it “can avoid a recession. We see that the labor market remains quite strong.”
But that fact alone poses a risk, as it could hamper the progress the Fed needs to make to bring US inflation back to target levels from the four-decade highs touched last year. Inflation showed signs of peaking in late 2022, but by the Fed’s preferred measure, it remains nearly three times its target of 2%.
“That’s … a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tight longer to bring down inflation,” Georgieva said.
Last year, in the most aggressive monetary tightening since the early 1980s, the Fed raised interest rates from near zero to the current range of 4.25% to 4.50% in March, and Fed officials last month forecast that it will surpass the 5% mark in 2023, a level not seen since 2007.
In fact, the US jobs market will be a key focus for Fed officials, who would like to see easing demand for labor to ease price pressures. The first week of the new year brings a slew of key data on the jobs front, including Friday’s monthly nonfarm payrolls report, which showed the US economy added another 200,000 jobs in December and the unemployment rate stayed at 3.7% – near the lowest since the 1960s.
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Reporting by Dan Burns; Editing by Lisa Shumaker
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