A third of the global economy will be in recession this year, the head of the International Monetary Fund (IMF) has warned. Kristalina Georgieva said 2023 will be “tougher” than last year as the US, EU and China see their economies slow.
Tough Situation
It comes as the war in Ukraine, rising prices, higher interest rates and the spread of Covid in China weigh on the global economy. “We expect one third of the world economy to be in recession,” Ms Georgieva said on the CBS news programme Face the Nation. “Even countries that are not in recession, it would feel like a recession for hundreds of millions of people,” she added.
The IMF cut its outlook for global economic growth in 2023 in October, due to the war in Ukraine as well as higher interest rates as central banks around the world attempt to rein in rising prices. Ms Georgieva warned that China, the world’s second largest economy, would face a difficult start to 2023. “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.
A New Phase
On Saturday, in his first public comments since the change in policy, President Xi Jinping called for more effort and unity as China enters what he called a “new phase”. The downturn in the US also means there is less demand for the products that are made in China and other Asian countries including Thailand and Vietnam. Higher interest rates also make borrowing more expensive – so for both these reasons companies may choose not to invest in expanding their businesses.
The lack of growth can trigger investors to pull money out of an economy and so countries, especially poorer ones, have less cash to pay for crucial imports like food and energy. The impact of higher interest rates on loans affects economies at the government level too – especially emerging markets, which may struggle to repay their debts. Bill Blaine, strategist and head of alternative assets at Shard Capital, described the IMF’s warning as “a good wake up and smell the coffee moment”.
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Source: BBC
