According to the International Monetary Fund’s (IMF) chief, this year will see a third of the world’s economy in a recession.
As the economies of the US, EU, and China slump, 2023 will be “tougher” than last year, according to Kristalina Georgieva.
The global economy is currently being weighed down by the conflict in Ukraine, rising costs, higher interest rates, and the expansion of Covid in China.
The IMF revised down its forecast for 2023 global economic growth in October.
On the CBS television show Face the Nation, Ms. Georgieva stated that “we predict one third of the world economy to be in recession.”
For hundreds of millions of people, it would feel like a recession even in nations that are not experiencing one, she continued
An economist at Moody’s Analytics in Sydney named Katrina Ell provided the BBC with her analysis of the global economy.
“While our baseline assumes that there won’t be a global recession in the coming year, the likelihood is uncomfortably high. However, the US is on the edge of collapse and Europe will not escape the recession “She spoke.
In October, the IMF revised down its forecast for global economic growth in 2023 as a result of the conflict in Ukraine and higher interest rates as central banks around the world work to contain inflation.
Since that time, despite the massive spread of coronavirus infections in the nation, China has abandoned its zero-Covid policy and begun to reopen its economy.
China, the second-largest economy in the world, would likely have a difficult beginning to 2023, Ms. Georgieva predicted.
She predicted that the coming months would be difficult for China, which would have a detrimental effect on the country’s progress as well as that of the region and the entire world.
190 nations make up the IMF, an international organisation. They cooperate in an effort to stabilise the world economy. Being a system for early economic warning is one of its most important functions.
The remarks made by Ms. Georgieva will worry people all across the world, especially in Asia, which had a rough year in 2022.
Because of the conflict in Ukraine, inflation has been slowly increasing throughout the area, and higher borrowing rates have also hurt consumers and businesses.
Data that was made public over the weekend indicated that the Chinese economy will be weak towards the end of 2022.
The official purchasing managers’ index (PMI) for December revealed that as coronavirus infections spread throughout the nation’s factories, factory activity in China declined for the third consecutive month and at the highest rate in over three years.
In the same month, housing prices in 100 cities decreased for the sixth consecutive month, according to a survey conducted by China Index Academy, one of the biggest independent real estate research businesses in the nation.
President Xi Jinping called for more effort and cooperation as China enters a “new chapter” on Saturday in his first public remarks since the policy adjustment.
Because of the US economy’s slump, there is also reduced demand for goods created in China and other Asian nations like Thailand and Vietnam.
Because borrowing is more expensive and interest rates are higher, some businesses may decide not to invest in growing their operations.
Investors may withdraw funds from an economy due to a lack of growth, leaving nations—particularly those that are poorer—with less money to pay for essential imports like food and energy.
A currency’s value versus that of more successful economies can decline during these slowdowns, aggravating the problem.
Governmental economies are also impacted by increased loan interest rates, particularly emerging markets, which may find it difficult to pay back their debts.
China has been a key trading partner for the Asia-Pacific area for many years, and it has also provided economic support during times of crisis.
Asian economies are currently dealing with the long-term financial consequences of China’s response to the pandemic.
As Beijing ceases zero-Covid, production of goods like Tesla electric vehicles and Apple iPhones might resume.
However, just when inflation seemed to have peaked, rising demand for commodities like oil and iron ore is likely to drive up prices much further.
“The loosened domestic Covid limitations in China are hardly a panacea. At least through the March quarter, the changeover will be difficult and a cause of instability “said Ms. Ell.
A nice wake-up and smell-the-coffee moment, according to Bill Blaine, strategist and head of alternative assets at Shard Capital, was provided by the IMF’s warning.
“We are not going to see interest rates decrease as swiftly as the markets expect,” he told BBC Radio 4’s Today programme. “Even though labour markets around the world are quite solid, the kind of employment being produced are not always high paying positions and we’re going to have a recession.”
“That will have a wide range of effects that will keep markets on edge for at least the first half of 2023,” says the author.