Kristalina Georgieva, the head of the International Monetary Fund (IMF), has predicted that this year would be more difficult for the global economy than the previous one.
She stated that while it is possible that the United States could avoid a recession, the situation in Europe, which has been severely affected by the Ukraine conflict, is direr. Georgieva stated, "Half of the European Union will be in recession."
US Economy
Per CNN, the IMF expects the global economy to expand by 2.7% this year, down from 3.2% in 2022.
China's downturn will have a disastrous effect on the global economy. China's tight zero-Covid policy threw it out of sync with the rest of the world, disrupting supply chains and harming the flow of commerce and investment in 2022, when it was the second largest economy in the world.
This past weekend, Chinese leader Xi Jinping stated that he anticipated China's economy to have increased by at least 4.4% in 2018, a figure that was far more than what many experts had forecast but significantly lower than the 8.4% growth rate seen in 2021.
Beijing lifted limits on Covid at the beginning of December, and while this may bring some much-needed assistance to the global economy, the recovery will be irregular and unpleasant. China's unplanned reopening has resulted in a tidal surge of Covid cases that have swamped the healthcare system, hence reducing consumption and output.
In October, the IMF lowered its forecast for global economic growth in 2023, reflecting the continued drag from the conflict in Ukraine as well as inflationary pressures and the high interest rates manufactured by central banks such as the Federal Reserve in an effort to tame inflationary pressures.
Since then, China has abandoned its zero-COVID policy and initiated a disorderly reopening of its economy, but consumers there remain concerned as coronavirus infections continue to rise. In his first public remarks since the policy shift, President Xi Jinping urged for greater effort and unity in China's "new phase" New Year's speech.
Moreover, a "bushfire" of anticipated COVID infections there in the coming months is likely to significantly impact China's economy this year and impede regional and global growth, according to Georgieva, who visited China late last month on behalf of the IMF.
In its October prediction, the IMF estimated that China's gross domestic product grew by 3.2% in 2017 - in line with its worldwide outlook for 2022. It also predicted that China's yearly growth would accelerate to 4.4% in 2023, while global activity would continue to decline, according to Business Today.
Her remarks, however, imply that another decrease to China and global growth expectations may be forthcoming later this month, when the IMF regularly releases new projections at the World Economic Forum in Davos, Switzerland.
In the meantime, according to Georgieva, the US economy stands apart and may avoid the outright recession that is expected to affect as much as one-third of the global economy.
Nevertheless, this reality poses a concern since it may impede the Fed's efforts to return US inflation to its target level from the highest levels in four decades, reached last year. As 2022 came to a close, there were indications that inflation had passed its high, but under the Fed's favored metric, it remained roughly three times its 2% objective.
Last year, in the most dramatic policy tightening since the early 1980s, the Fed raised its benchmark policy rate from near zero in March to the current range of 4.25% to 4.50%; Fed policymakers estimated last month that it will surpass 5% in 2023, a level not seen since 2007.
In fact, the US labor market will be a primary focus for Fed policymakers, who would prefer to see labor demand decline in order to reduce inflationary pressures. Friday's monthly nonfarm payrolls report is likely to reveal that the US economy created an additional 200,000 jobs in December and that the unemployment rate stayed at 3.7% - around the lowest level since the 1960s.
China Economy
Meanwhile, in his annual New Year's Eve talk, Xi Jinping adopted a cheerful tone three weeks after suspending his draconian economic controls in an attempt to revitalize China's stagnant economy. He stated, "China's economy is robust, with immense promise and vigor."
However, it is difficult to find optimism in downtown Guangzhou, the commercial center of southern China. Businesses have been devastated by "zero Covid" restrictions for over three years.
The streets are dotted with closed businesses and workshops. Walls are covered not with "help sought" placards but with messages from company owners selling their companies.
Once crowded with migrant laborers, roads and alleys are now mainly deserted. China's relaxation of Covid restrictions at the beginning of December was intended to benefit cities like Guangzhou.
But the disorganized method has led to a nationwide infection epidemic that has overwhelmed hospitals and funeral homes. In a number of sectors, truck drivers and other employees have gotten ill rapidly, resulting in temporary workforce shortages and slowed operations.
Now, confronted with an unexpected and uncontrolled pandemic and financial insecurity, individuals and businesses are spending cautiously, indicating that the road to recovery will be bumpy and difficult.
China also faces issues that extend beyond its boundaries. Due to high inflation, an energy crisis, and geopolitical unrest, the global economy is slowing down. As American and European consumers tighten their purse strings, China's domestic and international demand continues to decline.
The already razor-thin or nonexistent profit margins of many of China's small private enterprises are further eroded by weak consumer spending, as per NY Times.
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