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A third of the world’s economic power will face recession this year, the head of the International Monetary Fund has warned.
Kristalina Georgieva, the head of the organization, said that the year 2023 will be a little more difficult than last year, and the economic growth of the United States, China, and the European Union will be slow.
Warning from the International Monetary Fund
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Kristalina Georgieva
The war in Ukraine, rising prices, high interest rates, and the resurgence of the coronavirus in China could affect the global economy.
Speaking on CBS News, Kristalina Georgieva said that even in countries without recession, millions of people will be affected.
Katrina L, an economist at Moody’s Analytics in Sydney, shared her assessment of the global economy with the BBC. In it, he said that the global economy will avoid major impacts this year, and the impact will be more in one or two places. He noted that European countries in particular cannot avoid recession and America is on the brink of recession.
Last October, the International Monetary Fund released its World Economic Growth Index for the year 2023. The agency has lowered its estimates for global economic growth due to the war in Ukraine and central banks around the world raising interest rates to control inflation.
China has abandoned its zero-covid policy to revive its economy, and the spread of the virus has been rampant in recent times. The head of the International Monetary Fund has warned that this decision by China, which has the second largest economy in the world, will cause various difficulties in 2023.
A vulnerable Chinese economy
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Georgieva warned that the next few months will be difficult for China, which will have negative consequences for China’s development. He said that this decision of China will also be reflected in the global economic growth index. While this statement by the head of the International Monetary Fund was shocking news to the world, this is not new information for the Asian countries that suffered from economic recession in 2022. Business and normal life in Asian countries were affected due to the war in Ukraine and the rise in interest rates. The official Purchasing Managers’ Index (PMI) for December showed that factory activity there fell for the third straight month to a three-year low as the coronavirus outbreak swept China’s factories.
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Home prices in 100 cities fell for the sixth consecutive month in December, according to a survey by China Index Academy, one of the largest independent property research firms. Speaking on Saturday for the first time since the zero-covid policy change, Chinese President Xi Jinping said that as China has entered a new phase, there must be more effort and unity among the public.
The recession in the US means that demand for goods produced in Asian countries including China, Thailand and Vietnam has fallen.
What is the nature of the market?
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High interest rates have made borrowing more burdensome. So for these two reasons companies may decide not to invest in expanding their businesses. Due to this low growth, investors will start withdrawing money.
Therefore, poor countries will have less money to pay for important imports such as food and fuel. In such a situation, the value of a currency loses more value compared to its value in developed economies, further compounding the problem.
The impact of high interest rates on loans also affects developing countries. These countries will find it difficult to repay the loans. For decades, countries in the Asia-Pacific region have depended on China as a major trading partner and economic aid in times of crisis. The impact of China’s handling of the coronavirus will reverberate in these countries as well.
Tesla electric cars and Apple iPhones production may return to normal as China’s zero-covid policy ends. As demand for commodities such as crude oil and iron ore has increased, prices of these commodities are likely to rise further as inflation comes off a high.
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Bill Blaine of Short Capital said the IMF’s warning was a “significant one”. “Although labor markets around the world are very strong, the jobs being created are not necessarily high paying, we are going to see a recession and so interest rates are not going to fall as quickly as the markets think,” he told BBC Radio 4’s Today programme. “Due to the fallout from this, the markets will remain subdued for the first six months of 2023,” he said.
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