Kristalina Georgieva, the managing director of the International Monetary Fund (IMF) predicts a troubled outlook for the world economy in 2023.
According to Georgieva, this year will be even more challenging than the last, since “the three big economies, U.S., EU, China, are all slowing down simultaneously.”
The IMF expects “one-third of the world economy to be in recession” this year, said Georgieva. Even those countries not formally in a recession will feel the impact, she said.
Europe, more than the United States, is at risk of seeing the economy deteriorate further; the war in Ukraine has disrupted the European economy, with 2022 characterized by volatile energy prices throughout the region.
“Half of the European Union will be in a recession,” according to Georgieva.
The organization anticipates that the global economy will grow 2.7% this year, a reduction from 3.2% in 2022.
China’s deceleration will play a large part in the world’s slowdown, driven partly by Beijing’s strict zero-COVID policy that persisted long after much of the world had relaxed restrictions.
China’s president, Xi Jinping, recently announced he expected his country’s economy to have grown a minimum of 4.4% in 2022, more than the consensus of economist predictions. Even if Xi’s figures are accurate, this expansion represents roughly half of the 8.4% growth rate China experienced in 2021.
While in recent years, “China would deliver 34, 35, 40% of global growth,” said Georgieva, that was not the case last year. “For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” she said.
The sharp reduction is raising concerns among neighboring economies, according to Georgieva.
“When I talk to Asian leaders, all of them start with this question, ‘What is going to happen with China? Is China going to return to a higher level of growth?'” she said.
In December 2022, Beijing moved to soften strict pandemic restrictions. The move followed weeks of protests in the country over the government’s harsh COVID-19 measures.
While removing many of the restrictions may be seen as a positive development, the rapid transition has been blamed for a surge in infections sweeping across the country. The rapid spread of COVID-19 is disrupting China’s workforce and slowing manufacturing output in the country. According to some estimates, 60% of the population could be infected under the latest wave.
An impact this substantial in the world’s second-largest economy has the potential to reverberate through the rest of the global economy.
“If the truck drivers have problems, then goods cannot be delivered to factories, the factories cannot move cars to the shops, and the whole industry chain is affected,” said a senior executive at a large automotive manufacturer.
Still, the IMF does not expect China’s challenges to persist. The next couple of months will “be tough for China, and the impact on Chinese growth would be negative,” but by the end of the year, the country will be in a better position than where it started, predicted Georgieva.