Recession to strike on a third of the global economy in 2023, warns the head of the IMF (International Monetary Fund.
IMF managing director, Kristalina Georgieva, says that 2023 will be a “tougher” year than 2022 as we see significant economies like the EU, US, and China slump.
It could be an outcome of inflating prices, inclined interest rates, the war in Ukraine, and the outbreak of Covid in China that outweighs the global economy.
Last October, the IMF cut its interpretation of global economic growth in 2023.
Georgieva said on CBS’s news program – ‘Face the Nation,’ “We expect one third of the world economy to be in recession.”
She said, “Even countries that are not in recession, it would feel like recession for hundreds of millions of people.”
An economist at Moody’s Analytics, Katrina Ell, in Sydney, shared her analysis of the world economy with BBC.
She said, “While our baseline avoids a global recession over the next year, odds of one are uncomfortably high. Europe, however, will not escape recession, and the US is teetering on the verge.”
The IMF’s move to cut its outlook on global economic growth for 2023 in October resulted from the raging war in Ukraine and the increasing interest rates adopted by central banks worldwide, like the Federal Reserve, which also caused a jump in the prices.
China transitioned out of its zero-covid policy by reopening its economy, despite the expediting spread of the coronavirus infection across the country.
Ms. Georgieva also notified that what is known to be the world’s second-largest economy – China, will struggle with a tough start to 2023.
She added, “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.”
What’s the IMF, and What do they do?
- The IMF is an international body with 190 countries as its members.
- The organization works together and aims to stabilize the global economy. Its primary roles include acting as an early global economic indicator.
Figures that speak about the downfall in the Chinese economy
The figures reported over the weekend indicated the collapse of the Chinese economy by the end of 2022.
December’s official PMI (Purchasing manager’s index) indicated that the activities in the Chinese factories shrank at the fastest pace after three years and for the third consecutive month due to the spreading coronavirus infection in the country and its factories.
In a survey conducted by China Index Academy – the country’s largest and independent property research firms; during the same month, prices for homes fell in 100 cities for the sixth consecutive month.
President Xi Jinping on Saturday, in his initial public comments after the policy change, said that China needs more effort and unity as they enter what he refers to as a “new phase.”
How is China’s economic collapse going to impact other economies?
The economic decline in the US also indicates that there will be lower demands for Chinese and other Asian products manufactured in countries like Vietnam and Thailand.
Since the interest rates are now higher, it makes borrowing more pricey. Further, companies may deem it best to refrain from investing in businesses that are willing to expand, for both reasons.
The stagnant growth may discourage investors, making them pull out their money from some countries and economies, specifically the poor ones, leaving them with less cash to compensate for significant imports such as energy, fuel, and food.
In such scenarios where there is a slowdown among economies, it could aggravate the issue where a currency loses its value against other prosperous countries.
The effect of high-interest rates on debts can even be felt by economies at the governmental stage, mainly by emerging markets, who then struggle with paying off their debts.
For ages, the Asia-Pacific division has leaned on China, making it a prime trading partner and economic backbone during its crisis.
The Asian economies have been facing the enduring economic effects of how China dealt with the pandemic.
With Beijing ending its zero-Covid policy, the manufacturing of premium products like Apple iPhones and Tesla’s electric cars may resume.
But restored demand for commodities such as iron ore and oil will likely push the rising prices while inflation seems to have skyrocketed.
Ms. Ells stated, “China’s relaxed domestic Covid restrictions are not a silver bullet. The transition will be bumpy and a source of volatility at least through the March quarter.”
- Published By Team Timeswire