The head of the International Monetary Fund said that a third of the global economy will be affected by recession this year, as she warned that the world is facing a “tougher” year in 2023 compared to the previous 12 months.
The United States, the European Union and China are all slowing down simultaneously, said Kristalina Georgieva, managing director of the International Monetary Fund.
“We expect a third of the global economy to be in recession,” Georgieva told US television network CBS in an interview broadcast on Sunday, adding that “half of the European Union will be in recession” this year.
The International Monetary Fund cut its 2023 forecast for global economic growth in October, citing the continuing easing of the war in Ukraine as well as inflation pressures and interest rate hikes by major central banks.
Georgieva said that the rapid spread of the Covid virus in China now that its President Xi Jinping has abandoned the country’s aggressive containment policy, means that the country faces a new economic blow in the short term.
“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.
Georgieva said that for the first time in 40 years, China’s annual growth is likely to be at or below global growth, meaning it could depress global economic activity rather than drive it. “This has never happened before.”
Her comments indicate that the International Monetary Fund is likely to soon cut its economic forecasts for 2023 again. It usually publishes updated forecasts during the World Economic Forum in Davos, Switzerland, which will be held later this month.
Still, the United States is likely to survive the worst of the downturn, thanks in part to its strong labor market, Georgieva said.
She said the US “may avoid a recession” because its unemployment rate is so low. “If that resilience . . . holds [in 2023]The United States will help the world get through a very difficult year.” “The American economy is remarkably resilient.”
The unemployment rate in the United States was 3.7 percent, the country added 263,000 better than expected Nonfarm payrolls for November. Economists at Morgan Stanley expect the unemployment rate to be unchanged in December and for the US to add 185,000 jobs.
Late last month, US GDP for the third quarter was revised upward to 3.2 percent, from 2.9 percent in November.
But, Economists in a survey by the Financial Times We expect US unemployment to jump to 5.5 percent this year and 85 percent of economists polled expect a recession in 2023.
Meteorologists at Capital Economics said there is a 90 percent chance that the US will be in a recession within the next six months.
“While the recession in the US is likely to moderate, the eurozone will suffer a larger slowdown due to the significant hit to terms of trade from the Ukraine war,” Capital Economics said in December.
Also speaking on CBS, Bank of America chief economist Michael Jabin said the risk of a US recession was “high,” but any recession “may not be as deep and long-lasting.”
“It’s not certain,” he said, adding that 2023 could be a difficult economic year as the Federal Reserve continues to fight inflation.
Additional reporting from Reuters
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