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Global economy faces a tougher year in 2023, IMF’s Georgieva warns

Jan 1 (Reuters) – For much of the global economy, 2023 will be a tough year as the main engines of global growth – the United States, Europe and China – all experience weakened activity, the head of the International Monetary Fund said. on Sunday.

The new year is going to be “tougher than the year we̵[ads1]7;re leaving behind,” IMF Managing Director Kristalina Georgieva said on CBS Sunday morning’s “Face the Nation” news program.

“Why? Because the big three economies – the US, the EU and China – are all slowing down at the same time,” she said.

In October, the IMF cut its outlook for global economic growth in 2023, reflecting continued resistance from the war in Ukraine, as well as inflationary pressures and the high interest rates developed by central banks such as the US Federal Reserve aimed at bringing these price pressures to an end.

Since then, China has scrapped its zero-Covid policy and embarked on a chaotic reopening of the economy, although consumers there remain wary as coronavirus cases rise. In his first public comments since the policy change, President Xi Jinping on Saturday 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.

Also, a “bushfire” of expected COVID infections there in the coming months is likely to hit the economy further this year and drag on both regional and global growth, said Georgieva, who traveled to China on IMF business late last month.

“I was in China last week, in a bubble in a city where there is zero COVID,” she said. “But it’s not going to last when people start leaving.”

“For the next couple of months, it will be tough for China, and the impact on Chinese growth will be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.

In its October forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2% – in line with the fund’s global outlook for 2022. At the time, it also saw annual growth in China accelerating to 4.4% in 2023 while global activity slowed further .

However, her comments suggest that another cut in both China and global growth prospects could be in store later this month when the IMF usually unveils updated forecasts during the World Economic Forum in Davos, Switzerland.


Meanwhile, Georgieva said, the US economy is standing apart and can avoid the outright contraction that is likely to hit as much as a third of the world’s economies.

“The US is the most resilient,” she said, and it “may avoid recession. We see the labor market remaining quite strong.”

But that fact itself poses a risk because it could hamper the progress the Fed needs to make to bring US inflation back to its targeted level from the highest levels in four decades last year. Inflation showed signs of peaking by the end of 2022, but at the Fed’s preferred target it remains nearly three times the 2% target.

“This is … a mixed blessing because if the labor market is very strong, the Fed may have to keep interest rates tighter longer to bring down inflation,” Georgieva said.

Last year, in the most aggressive policy tightening since the early 1980s, the Fed raised its benchmark policy rate from near zero in March to the current range of 4.25% to 4.50%, and Fed officials last month projected that it would break the 5% limit. in 2023, a level not seen since 2007.

In fact, the US labor market will be a key focus for Fed officials who want to see labor demand ease to help undermine price pressures. The first week of the new year brings a slew of key data on the employment front, including Friday’s monthly nonfarm payrolls report, which is expected to show the U.S. economy shed another 200,000 jobs in December and the unemployment rate held at 3.7% — close to lowest since the 1960s.

Read more:

US STOCKS-Wall St ends 2022 with biggest annual decline since 2008

GRAPHIC – How 2022 shocked, shook and rolled global markets

Reporting by Dan Burns; Editing by Lisa Shumaker

Our standards: Thomson Reuters Trust Principles.

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