One-third of the world economy to be in recession, warns IMF chief

January 03, 2023 (MLN): Developing economies might get trapped into a string of financial crises that can cause them lasting harm, warns the IMF head by stating, that the global economy will be hit by recession this year, as the world faces a “tougher” year in 2023 than the previous 12 months as per reported by Financial Times.

This may reflect that the economies throughout the world might be inching towards global recession in 2023 as the main engines of global growth – the US, Europe, and China – all experience weakening activity, the head of the International Monetary Fund has warned.

Nowadays, rising inflation and contracting Gross Domestic Product (GDP) growth is the point of discussion globally. In major economies, their central banks have concurrently raised the policy rates to curb inflation.

Similarly, the US, EU, and China are all slowing simultaneously, said IMF managing director Kristalina Georgieva.

IMF managing director Kristalina Georgieva told in an interview that half of the European Union will be in a recession” this year.

The IMF in October cut its 2023 outlook for global economic growth, citing the continuing drag from the war in Ukraine as well as inflation pressures and interest rate rises by major central banks.

 Moreover, the rapid spread of Covid-19 in China now that the government has dropped its severe containment policy means that the country faces a fresh economic blow in the short term, Georgieva said.

 “For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.

As well as for the first time in 40 years China’s annual growth is likely to be at or below global growth, Georgieva said, meaning it could drag down worldwide economic activity rather than propelling it. “That has never happened before,” she said.

Her comments suggest the IMF is likely to soon cut its economic forecasts for 2023 again; it usually publishes updated projections during the World Economic Forum in Davos, Switzerland, which takes place later this month.

 The US is likely to escape the worst of the downturn, thanks in part to its strong labor market, Georgieva said. The US “may avoid a recession” because its unemployment is so low, she said.

 “If that resilience…. holds [in 2023], the US would help the world to get through a very difficult year,” she said. “The US economy is remarkably resilient.”

However, economists polled by the Financial Times expect US unemployment to jump to 5.5% this year and 85% of economists surveyed expect a recession in 2023.

Also speaking on CBS, Bank of America’s chief economist Michael Gapen said the risk of US recession in the US was” high,’’ but any recession may not be deep and prolonged.

2023 could still be a difficult economic year as the Federal Reserve continues to fight inflation, he added.

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