The Managing Director of the International Monetary Fund (IMF), IMF Manag has projected that some global economies would face even tougher challenges this year than the past year as some big economies will simultaneously decline.
The IMF boss in an interview with CBS, said: “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 – US, China and EU – are all slowing down simultaneously.”
The IMF is projecting that the global growth will slow down to 2.7%, or even lower, by the end of the year, dropping from 3.2% in 2022, representing a major slide from the 6% seen back in 2021.
By October last year, the IMF had downgraded its outlook for global economic growth for this year three times, from 3.2% for 2022 and 2.9% for 2023.
In the recent interview, the development finance expert predicted that the global economic growth could slide further if central banks get “cold feet” and steer off the current inflation fighting course.
Specifically, she pointed out that if the banks were deterred by slowing rate of growth and decided to “slow down the fight against inflation, we then risk inflation becoming more persistent”.
To avert the ugly situation, the IMF charged the central banks to see a credible decline in inflation after which they can think about recalibrating rate policy.
Speaking on the other main drivers to the slowdown in global growth, Georgieva identified China as a significant factor as the country has the second largest economy in the world, contributing 30-40% of global economic growth in the pre-Covid 19 period.
However, she noted that since the pandemic began, China’s productivity levels had fallen dramatically as its strict Covid lockdown policies have persisted much longer than other countries.
Georgieva said: “For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth.”
Noting that the Chinese Communist Party decided to taper off its zero-Covid policy at the end of last year, which has led to a swell in Covid case numbers, Georgieva said that the negative impact of people not being able to go to work on growth would be counterbalanced by the positive outcome of the economy reopening.
According to her, given how reliant the world was on Chinese exports and its supply chains, “up until now, the biggest impact on inflation came from restrictions due to Covid… now we have the impact of people getting sick and not being able to go to work, but the economy would be open.
“Gradually, [China] will move to a higher level of economic performance and finish the year off better than it started”, the IMF boss added.
While this was arguably a bright spot, the IMF managing director further clarified that it would not be an easy year for any economy, including the much stronger US.
She said: “I hope that the US is not going to slip into a recession, despite all these risks. We expect one-third of the world economy to be in recession. And even countries that are not in recession, it would feel like recession for hundreds of millions of people.
“But if the resilience of the US labour market holds, that would help the world to get through a very difficult year”, Georgieva added.
