Recession Threatens Third of World Economy, IMF’s Georgieva Warns

The year 2023 is going to be a tough year– tougher than the year we leave behind- for much of the global economy as the United States, Europe, and China, the main engines of global growth, are all experiencing weakening activity – and possible recession- the head of the International Monetary Fund said on Sunday.

Speaking on the CBS Sunday morning news program “Face the Nation,” IMF Managing Director Kristalina Georgieva pointed out that the IMF expects one-third of the world economy to be in recession, noting, however, that a strong US labor market might help the world get through a difficult year.

She warned that it would feel like a recession for hundreds of millions of people, even for countries that are not in recession, because the three big economies are all slowing down simultaneously though the US economy may avoid the outright contraction that is threatening to afflict as much as a third of the world’s economies.

At the same time, Georgieva pointed to the US economy as the most resilient, noting that it may actually avoid recession considering that the labor market there remains quite strong.

However, since it may hamper the progress needed by the Fed to make in bringing US inflation back to its targeted level – from the highest levels in 40 years touched last year – that fact on its own presents a risk.

Georgieva described the situation as a mixed blessing because the Fed may have to keep interest rates tighter for longer to bring inflation down if the labor market is very strong.

Though by the Fed’s preferred measure inflation remains nearly three times its 2% target, it showed signs of having passed its peak as 2022 ended.

In its most aggressive policy tightening since the early 1980s, the Fed lifted last year its benchmark policy rate from near zero in March to the current range of 4.25% to 4.50%, projecting last month it will breach the 5% mark in 2023.

The last time that level was seen was in 2007.

Reflecting the continuing drag from the Ukraine war as well as the pressures of inflation and the high-interest rates engineered by central banks aimed at bringing those price pressures to heel, the IMF cut in October its outlook for global economic growth in 2023.