A third of the global economy will be hit by recession this year, the head of the IMF has said, as she warned that the world faces a “tougher” year in 2023 than the previous 12 months.
The US, European Union and China are all slowing simultaneously, Kristalina Georgieva, IMF managing director, said.
“We expect one-third of the world economy to be in recession,” Georgieva told US TV network CBS in an interview that aired on Sunday, adding that “half of the European Union will be in a recession” this year.
The IMF cut its 2023 outlook for global economic growth in October, citing the continuing drag from the war in Ukraine as well as inflation pressures and rises in interest rates by major central banks.
The rapid spread of Covid in China now that its president Xi Jinping has dropped the country’s 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.
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.”
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.
However, the US is likely to escape the worst of the downturn, thanks in part to its strong labour 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.”
US unemployment stands at 3.7 per cent and the country added a better than expected 263,000 jobs in the November non-farm payrolls. 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 gross domestic product for the third quarter was revised higher to 3.2 per cent, from 2.9 per cent in November.
However, economists polled by the Financial Times expect US unemployment to jump to 5.5 per cent this year and 85 per cent of economists surveyed expect a recession in 2023.
Forecasters at Capital Economics have said there is a 90 per cent chance that the US is in a recession in the next six months.
“While the US recession is likely to be mild, the eurozone will suffer a larger downturn due to the huge hit to its terms of trade caused by the Ukraine war,” Capital Economics said in December.
Also speaking on CBS, Bank of America’s chief economist Michael Gapen said the risk of a US recession in the US was “high”, but any recession “may not be a deep and prolonged one”.
“It’s not for certain,” he said, adding that 2023 could still be a difficult economic year as the Federal Reserve continues to fight inflation.
Additional reporting by AKUURA