[Asia Economy New York=Special Correspondent Joselgina] "2023 will be a 'more difficult' year for many parts of the global economy." Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF), predicted on the 1st (local time) that the simultaneous slowdown of the US, European Union (EU), and Chinese economies this year will lead the world to face greater challenges.
On the same day, Managing Director Georgieva appeared on CBS News' program "Face the Nation" and stated, "We expect one-third of the global economy to enter a recession," referring to this outlook. According to the IMF's analysis, many countries will experience at least two consecutive quarters of contraction this year. In the case of the EU, which has been hit directly by the Ukraine war, it is estimated that half of the countries will fall into recession.
In particular, Managing Director Georgieva diagnosed that the global economic growth rate could worsen beyond initial forecasts due to China’s abandonment of the "Zero COVID" policy at the end of last year. Having visited China last month on IMF business, she said, "The easing of COVID-19 restrictions means a 'wildfire' of COVID cases across China," adding, "Once the Chinese start traveling, Zero COVID will not be sustained." Since the abandonment of Zero COVID, the spread of COVID-19 within China has become prominent. In addition, major countries are closing their borders to block the inflow of infections originating from China.
Managing Director Georgieva warned, "China will face difficulties in the coming months," and "These repercussions will negatively affect not only China's growth but also regional and global growth." She also added that China's growth rate in 2022 is likely to be equal to or lower than global growth for the first time in 40 years.
These remarks suggest that the IMF may soon revise downward its 2023 economic growth forecast again. Previously, in October last year, the IMF lowered the global economic growth forecast to 2.7%, down 0.2 percentage points, citing interest rate hikes by major countries, inflationary pressures, and the Ukraine war. At that time, China's growth forecast was also lowered by 0.2 percentage points to 4.4%. Typically, the IMF updates growth forecasts annually at the World Economic Forum Annual Meeting (WEF, Davos Forum) held in Davos, Switzerland, every January.
However, Managing Director Georgieva expected the US economy to avoid recession this year due to a strong labor market. She evaluated, "The US economy is remarkably resilient," and "(In 2023) the US will help the world overcome a very difficult year." Currently, the US unemployment rate is 3.7%, which is effectively full employment. The third-quarter Gross Domestic Product (GDP) released last month was revised upward from the preliminary figure of 2.9% announced in November to 3.1%.
Nevertheless, concerns about a recession surrounding the US continue to pour out on Wall Street. Capital Economics estimated a 90% chance that the US will enter a recession within six months. In a survey of economists conducted by major foreign media, 85% of respondents predicted a US recession within the year.
On the same day, the "strong labor market" that Georgieva mentioned as the reason the US can avoid recession is also evaluated as a negative factor for the Federal Reserve's (Fed) future actions to achieve its inflation target. Michael Gapen, Chief Economist at Bank of America (BoA), said, "Since the Fed is still fighting inflation, 2023 could still be a difficult year for the US economy."
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