Belgium, (Brussels Morning Newspaper) International Monetary Fund (IMF) head Kristalina Georgieva predicted on Sunday that 2023 will be more difficult than 2022.
She pointed out that the largest economies – the US, the EU and China – are contracting simultaneously and predicted that new coronavirus infections will hit China’s economy this year, according to France24 reporting on Monday.
Chinese President Xi Jinping recently scrapped his zero-COVID-19 policy and called for more unity and effort on Saturday as the country enters a “new phase.”
Georgieva noted “I was in China last week, in a bubble in a city where there is zero COVID… but that is not going to last once people start travelling.”
“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she predicted.
The IMF predicted in October that China’s GDP growth in 2022 would stand at 3.2%, approximately on the level of global growth. It expects China’s growth to stand at 4.4% this year, warning that global growth will likely continue to slow down.
Georgieva noted that the IMF could cut China’s and global growth outlooks in the coming weeks, at the World Economic Forum (WEF) annual meeting in Davos.
Commenting on the US, she noted that it “may avoid recession” as the labour market remains strong and stressed that the US economy “is most resilient.”
Advantages and disadvantages
On the other hand, Georgieva warned that “the Fed may have to keep interest rates tighter for longer to bring inflation down” if the labour market remains strong, stressing that strength of the market was a mixed blessing.
She reminded that the Fed is struggling to rein in inflation, which has reached a 40-year high last year and remains significantly above the 2-percent target.
The Fed upped interest rates from nearly 0 in March last year to more than 4%, with officials predicting last month that the figure will exceed 5% this year.
It hopes that demand for labour will drop to help lower price pressures and bring inflation back to acceptable levels.
