Embrace for a tougher 2023 economy: IMF Warns

The International Monetary Fund Managing Director, Kristalina Georgieva, speaks at a conference in Riyadh, Saudi Arabia, October 3, 2022. REUTERS/Ahmed Yosri

NAIROBI, Kenya - The International Monetary Fund has warned that the year 2023 is going to be a tough year as the main engines of global growth, the US, Europe, and China are all experiencing weakening activity.

This is according to IMF boss Kristalina Georgieva who was speaking to CBS media.

Late last year the global lender cut its outlook for global economic growth in 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high-interest rates engineered by central banks like the US Federal Reserve aimed at bringing those price pressures to heel.

China has already scrapped its zero-COVID policy and embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge.

President Xi Jinping during his first public comments since the change in policy, called in a New Year's address for more effort and unity as China enters a "new phase."

"For the first time in 40 years, China's growth in 2022 is likely to be at or below global growth," Georgieva said.

"I was in China last week, in a bubble in a city where there is zero COVID," she said. "But that is not going to last once people start traveling. 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.

In October's forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2 percent — on par with the fund's global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4 percent while global activity slowed further.

Her comments, however, suggest another cut to both the China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.

On US economy projection, Georgieva said, the US economy is standing apart and may avoid the outright contraction that is likely to afflict as much as a third of the world's economies.

“The US is most resilient," she said, and it "may avoid recession. We see the labor market remaining quite strong. This is ... a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down," Georgieva said.

Last year, in the most aggressive policy tightening since the early 1980s, the Fed lifted its benchmark policy rate from near zero in March to the current range of 4.25 percent to 4.50 percent, and Fed officials last month projected it will breach the 5 percent mark in 2023, a level not seen since 2007.

Indeed, the US job market will be a central focus for Fed officials who would like to see demand for labor slacken to help undercut price pressures.

GAROWE ONLINE