Three of the world's biggest economies, the United States, the European Union and China, are witnessing slowing growth.
The head of the International Monetary Fund (IMF), Kristalina Georgieva, left concerning footnotes for the new year at the CBS Sunday morning news program "Face the Nation."
The Bulgarian economist quoted that the new year would be "tougher than the year we leave behind." Her paramount New Year remarks came after the IMF's recent cut in its global growth forecast to 2.7 per cent in October, down from the 2.9 percent forecast in July, amid the continuing drag from the Ukraine war, inflation pressures, and the sharply rising interest rates.
Subsequently, the EU tops the list amongst ones severely hit by the war in Ukraine, with half of the bloc expected to be in recession this year, according to her.
Kristalina further expressed her expectancy concerns about one-third of the world economy being in recession. The second largest economy in the world, China is likely to grow at or below global growth for the first time in 40 years as COVID-19 cases surge following the dismantling of its ultra-strict "zero-COVID" policy.
She added, "for the next couple of months, it will be tough for China, and the impact on Chinese growth will be negative, the impact on the region will be negative, the impact on global growth will be negative."
The fact was further reinforced by the official purchasing managers' index (PMI) for December, revealing that China's factory activity shrank for the third month. This was the fastest rate in nearly three years as coronavirus infections spread in the country's factories.
According to a survey by China Index Academy, housing costs also fell in 100 cities for the sixth month in a row in the same month.
The Asia-Pacific region that depended on China for decades for economic support as a significant trading partner in times of crisis are now questioning the Chinese monetary conditions. Kristalina added, "Before COVID, China would deliver 34, 35, 40 percent of global growth. It is not doing it anymore. It is actually quite stressful for … the Asian economies.
When I talk to Asian leaders, all of them start with this question, 'What is going to happen with China? Is China going to return to a higher level of growth?'"
As for the US, even though it offers the most resilience, its economy seems to be at its edge. Kristalina described it as a double-edged sword with a strong labour market that may hinder their advancement to bringing US inflation back to its target from the four-decade high it hit last year. "This is ... a mixed blessing because if the labour market is very strong, the Fed may have to keep interest rates tighter for longer to bring inflation down," She added. However, her comments throughout the occasion suggest another cut to both the China and global growth outlook later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.
Overall, the effects of the three of the world's major powers being down are far and wide, as best described by her. "Even in countries that are not in recession, it would feel like a recession for hundreds of millions of people," she added. Consequently, some effects include reduced demand for Asian-made products from the likes of China, Thailand and Vietnam. Moreover, more expensive loans due to higher interest may make businesses not choose to invest in expanding their businesses.
Additionally, the lack of growth can initiate a chain of investors pulling money out of an economy, resulting in poorer countries having less cash to pay for crucial imports like food and energy.
