IMF Managing Director Kristalina Georgieva stated that this year would be "tougher than the year we leave behind" due to the simultaneous slowing of these three major economies. In October, the IMF downgraded its outlook for global economic growth in 2023, citing ongoing issues such as the war in Ukraine, inflation pressures, and high-interest rates implemented by central banks such as the US Federal Reserve.
Additionally, China's scrapping of its zero-COVID policy and the resulting chaotic reopening of the economy has caused consumer uncertainty. It is likely to impact the country's economy further and drag on regional and global growth. Georgieva notes that China's growth in 2022 is expected to be at or below global growth for the first time in 40 years, and the expected surge in COVID infections in the coming months is likely to harm the economy further. These comments suggest that the IMF may cut its outlook for both China and global growth when it unveils updated forecasts later this month at the World Economic Forum in Davos, Switzerland.
US Economy 'Most Resilient' May Avoid Recession
Despite the global economy's overall challenges, Georgieva stated that the US economy is standing apart and may avoid recession. The strong US labor market presents both a risk and a blessing, as it may hinder the progress the Federal Reserve needs to bring US inflation down to its targeted level. Inflation remains nearly three times the 2% target, even though it showed signs of having peaked at the end of 2022. The US job market will be a key focus for the Federal Reserve as they aim to decrease labor demand to reduce price pressures.
IMF Urges Countries to Prioritize Debt Relief
In light of the global economy's challenges, the IMF has called on countries to prioritize debt relief to support economic recovery. Georgieva emphasized the need for a comprehensive approach to debt sustainability that includes debt relief and financing, stating that "we cannot solve debt without financing, and we cannot solve financing without debt relief." She noted that the IMF has already provided debt relief to 25 countries and is working on solutions for an additional 20 countries.
Global Trade Tensions Continue to Weigh on Economic Growth
Georgieva also highlighted the ongoing impact of global trade tensions on economic growth, stating that "trade tensions are not helping the recovery." She pointed to the US-China trade conflict as a major contributor to these tensions and urged all countries to work towards a more stable and predictable global trading system.
IMF Sees 'tentative' Signs of Economic Recovery in Europe
Despite the global economy's overall challenges, Georgieva noted that there are "tentative" signs of recovery in Europe. She cited the European Union's vaccine rollout and the implementation of economic support measures as positive developments. Still, she cautioned that the recovery remains fragile and dependent on the success of vaccination efforts and the resolution of ongoing issues such as Brexit.
Emerging Markets Face 'Significant Challenges' in the Coming Year
Georgieva also discussed the challenges facing emerging markets in the coming year, stating that these countries face "significant challenges" due to various factors, including the global economic slowdown, rising debt levels, and the impact of the COVID-19 pandemic. She emphasized the need for these countries to implement sound economic policies to support recovery and growth.