A third of the global economy will be hit by recession this year, the head of the IMF has said, as he warned that the world will face a “tougher” year in 2023 than the previous 12 months.
The US, the European Union and China are all slowing down together, said Kristalina Georgieva, managing director of the IMF.
“We expect one-third of the world economy to be in recession,” Georgieva told US TV network CBS in an interview broadcast on Sunday, adding that “half of the European Union will be in recession” this year.
The IMF cut its 2023 outlook for global economic growth in October, citing continued drag from the war in Ukraine as well as inflationary pressures and interest rate hikes by major central banks.
The rapid spread of Covid in China now that president Xi Jinping has loosened the country’s severe containment policy means that the country is facing a new economic explosion in the short term, Georgieva said.
“For the next few months, it will be difficult 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.
For the first time in 40 years, China’s annual growth is likely to be at or below global growth, Georgieva said, meaning it could drag down world economic activity instead of propelling it. “This has never happened before.”
His comments suggest the IMF will soon cut its economic forecast for 2023 again; usually publishes updated projections during the World Economic Forum in Davos, Switzerland, which takes place this month.
However, the US may have escaped the worst of the downturn, thanks to a strong labor market, Georgieva said.
The US “can avoid recession” because unemployment is low, he said. “If that’s tenacity . . . hold [in 2023]the US will help the world get through a very difficult year,” he said. “The US economy is very resilient.”
U.S. unemployment stood at 3.7 percent and the country added a better-than-expected 263,000 jobs in November nonfarm payrolls. Economists at Morgan Stanley expect the unemployment rate to be unchanged in December and the US to add 185,000 jobs.
Late last month, US gross domestic product for the third quarter was revised higher to 3.2 percent, from 2.9 percent in November.
However, economists polled by the Financial Times expect US unemployment to rise to 5.5 percent this year and 85 percent of economists surveyed expect a recession by 2023.
Forecasters at Capital Economics say there is a 90 percent chance the U.S. will be in recession within the next six months.
“While the US recession is likely to be mild, the eurozone will suffer even more as a result of the huge impact on terms of trade caused by the Ukraine war,” Capital Economics said in December.
Also speaking on CBS, Bank of America chief economist Michael Gapen said the risk of a US recession in the US was “high”, but that any recession “may not be deep and prolonged”.
“It’s not certain,” he said, adding that 2023 could still be a tough economic year as the Federal Reserve continues to fight inflation.
Additional reporting by Reuters