IMF’s Georgieva: Global economy faces tougher year in 2023

The New Year is going to be tougher than the year we leave behind.

Why? Because the three big economies – the US, EU and China – are all slowing down simultaneously.

For the first time in 40 years, China's growth in 2022 is likely to be at or below global growth.

Moreover, a ‘bushfire’ of expected COVID infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth.

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 traveling.

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.

The US economy is standing apart and may avoid the outright contraction that is likely to afflict as much as a third of the world's economies. We see the labor market remaining quite strong.

But that fact on its own presents a risk because it may hamper the progress the Fed needs to make in bringing U.S. inflation back to its targeted level from the highest levels in four decades touched last year.

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