Business

IMF chief warns recession will hit a third of the world this year

The head of the IMF said a third of the global economy will be affected by a recession this year, and warned that the world will face a “tougher” 2023 than the previous 12 months. .

Kristalina Georgieva, managing director of the IMF, said the US, European Union and China are all slowing down.

“We think a third of the world economy will be in recession,” Georgieva told US television network CBS in an interview that aired on Sunday, adding that “half the Union Europe will fall into recession” this year.

The IMF cut its global economic growth outlook for 2023 in October, citing the continued protracted war in Ukraine as well as inflationary pressures and interest rate hikes by major central banks.

Georgieva said the rapid spread of Covid in China as President Xi Jinping abandoned the country’s strict containment policy meant the country faced a new economic blow in the short term.

“Over the next few months, it will be very difficult for China and it will have a negative impact on China’s growth, negative impact on the region, negative impact on global growth,” she said.

For the first time in 40 years, China’s annual growth could be equal or lower than global growth, Georgieva said, meaning it could drag global economic activity down rather than boost it. it. “This has never happened before.”

Her remarks suggest that the IMF may soon cut its economic forecast for 2023 again; it usually publishes updated forecasts during the World Economic Forum in Davos, Switzerland, which takes place later this month.

Still, the US is likely to come out of the worst of the recession, thanks in part to its strong labor market, Georgieva said.

She says the US can avoid a recession because its unemployment rate is so low. “If that resilience . . . holding [in 2023], the United States will help the world through a very difficult year,” she said. “The US economy has significant resilience.”

The US unemployment rate is at 3.7% and the country has added better than expected 263,000 jobs in nonfarm payrolls in November. Economists at Morgan Stanley expect the unemployment rate to be flat 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%, from 2.9% in November.

However, economists polled by the Financial Times Expect the US unemployment rate to rise to 5.5% this year, and 85% of economists surveyed predict a recession in 2023.

Forecasters at Capital Economics say there is a 90% chance the US will slip into a recession in the next six months.

“While the economic downturn in the US may be mild, the euro area will suffer a larger recession due to the large impact on trade terms caused by the Ukraine war,” Capital Economics said in a note. December.

Also speaking on CBS, Bank of America chief economist Michael Gapen said the risk of a recession in the US was “high”, but any recession “may not be as deep and long”.

“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 Reuters reporting



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