by Dan Burns
(Reuters) – The year 2023 will be difficult for much of the global economy as the main engines of international growth – the United States, Europe and China – all experience a slowdown, the director said on Sunday. general of the International Monetary Fund (Reuters) IMF).
The new year will be “more challenging than the year we left behind,” Kristalina Georgieva said on CBS’ “Face the Nation” show, airing Sunday morning.
“Why? Because the three major economies – the US, the EU and China – are all slowing down simultaneously,” she said.
The IMF lowered its global growth forecast for 2023 in October to take into account tensions related to the war in Ukraine, inflation and interest rate hikes, stressing that the situation could worsen significantly.
China has since abandoned its “zero COVID” policy and begun reopening its economy, although Chinese consumers remain wary of a surge in coronavirus cases.
In a New Year’s address on Saturday, President Xi Jinping called for more effort and unity as China enters a “new phase”.
According to Kristalina Georgieva, who visited China on behalf of the IMF at the end of December, “for the first time in 40 years, China’s growth in 2022 is likely to be equal to or lower than global growth”.
Meanwhile, the expected epidemic outbreak in the coming months is likely to further affect the Chinese economy this year and dampen regional and global growth, she added.
“I was in China last week, in a bubble in a city where there (was) no COVID,” she said. “But that’s not going to last when people start traveling.”
The next two months will be difficult for China, and the impact on Chinese growth, on the region and on global growth will be negative, assesses Kristalina Georgieva.
THE RESILIENCE OF THE AMERICAN ECONOMY
The US economy, on the other hand, stands out and can avoid the downturn that risks affecting up to a third of the world’s economies, the IMF’s managing director estimates.
“The US is the most resilient,” she said, and “it could avoid recession. We think the labor market will remain quite strong.”
However, this fact poses a risk as it could hamper the progress that the US Federal Reserve (Fed) needs to make to bring US inflation back to its target level of 2%.
“It’s … 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,” Kristalina Georgieva said.
The Fed raised its key interest rate in December by half a point to 4.50% and announced new economic projections that will involve at least another rate hike of 75 basis points in 2023.
The US labor market will be a focus for Fed officials, who would like to see labor demand ease to ease price pressures.
The first week of the new year will be marked by a number of key data on the jobs front, including the monthly nonfarm payrolls report on Friday. Analysts expect 200,000 additional jobs to be created by December and the unemployment rate steady at 3.7%, the lowest since the 1960s.
(Reporting by Dan Burns; French version by Kate Entringer)
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