An economic slowdown is on the global horizon, according to Kristalina Georgieva, managing director of the International Monetary Fund.
In an interview on CBS’ Face the Nation on Sunday, January 1st, she predicted that a third of the world’s economies would enter a recession this year. Europe, she said, will be particularly hard hit with half of the continent’s countries likely to see their GDP shrink.
She blamed the dire forecast on several factors: the war in Ukraine, rising inflation, rising interest rates, and the COVID-19 situation in China.
“For most of the world economy, this is going to be a tough year, tougher than the year we leave behind. Why? Because the three big economies, U.S., EU, China, are all slowing down simultaneously,” Georgieva said.
The U.S., with a more resilient economy and a strong job market, may avoid a recession, but China will still be deeply impacted this year by the COVID situation, and Europe by the war in Ukraine.
Though China has begun lifting restrictions and opening up after three years of lockdowns, the exponential spike in COVID cases in the country will make economic recovery slow. Georgieva explained:
We expect that there would be counterweight from the sheer opening of the economy, because up to now, the biggest impact on global value chains came from restrictions due to COVID … Now, we would have the impact of people getting sick, not going to work, but the economy would be open. The world has relied on China’s growth for a long, long, long time. Before COVID, China would deliver 34, 35, 40% of global growth. It is not doing it anymore.
Though 2023 will be tough for China, the IMF leader expects its economy to start to recover towards the end of the year.
Poorer countries, though, will be hardest hit by the economic recession, Georgieva said, specifically mentioning Chad, Ethiopia, Zambia, Ghana, Lebanon, Surinam, and Sri Lanka.
“When we look at the emerging markets in developing economies; there, the picture is even direr. Why? Because on top of everything else, they get hit by high interest rates and by the appreciation of the dollar. For those economies that have [a] high level of that, this is [devastating],” Georgieva said.
She also warned of a potential debt crisis if countries didn’t rein in spending now following the heavy borrowing done during the pandemic. Overall, she cautioned, the world has become more economically volatile and governments need to be prepared.
“My message: don’t think that we are going to go back to pre-COVID predictability. More uncertainty, more overlap of crises wait for us,” she said.
She also said that the war in Ukraine and the pandemic had shown the need to rethink global supply chains but cautioned against decisions and policies—such as a complete rupture in US-China trade—that would make products too expensive.
She also praised Ukraine, where she said she had relatives, for its “resilience” and for keeping its government and economy functioning through the war. She said the IMF had already given the country $2.7 billion in financing and was preparing another package of support for 2023.
She ended on a positive note, encouraging countries to work together to get through the present crisis.