Kristalina Georgieva, the head of the International Monetary Fund (IMF), has warned that this year would be harder on the global economy than the one we just finished.
“Why? Because the three big economies, US, UK, China are all slowing down simultaneously”, she said in an interview that aired on CBS Sunday.
“We expect one-third of the world economy to be in recession”, she said, adding that even for countries that are not in recession: it would feel like a recession for hundreds of millions of people”.
While the US may avoid a recession, the outlook for Europe, which has been severely impacted by the war in Ukraine, is more gloomy, according to her. “Half of the European Union will be in recession”, she added.
The IMF presently expects this year’s global growth to be 2.7%, down from 3.2% in 2022.
Globally, the slowdown in China will be disastrous. Due to its strict zero-Covid policy, which put China out of step with the rest of the world, disrupting supply chains and harming the flow of commerce and investment, the second-largest economy in the world experienced a sharp decline in 2022.
Chinese President Xi Jinping stated this past weekend that he anticipated the country’s economy to have grown by at least 4.4% last year, which was far higher than many economists had anticipated but significantly lower than the 8.4% growth rate seen in 2021.
“For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” Georgieva added, “Before Covid, China would deliver 34, 35, 40% of global growth.” Continuing, she admitted, “It is not doing it anymore, and that is quite a stressful period for Asian economies”
“Georgieva continued, “When I talk to Asian leaders, all of them start with this question, ‘What is going to happen with China? Is China going to return to a higher level of growth?’
Beijing removed the Covid limitations at the beginning of December, and while its reopening may give the world economy some much-needed relief, the recovery will be inconsistent and unpleasant.
Covid cases have flooded the healthcare system as a result of China’s hasty reopening, depressing both consumption and output.
Georgieva added that she anticipates China will gradually shift to a higher level of economic performance and finish the year better off than it would start the year, despite the fact that the next few months will be difficult for the country and have a negative influence on Chinese growth.