IMF Managing Director Kristalina Georgieva participates in a town hall discussion with civil society organizations at IMF headquarters in Washington on Oct. 10, 2022. (Drew Angerer/Getty Images)
Kristalina Georgieva, managing director of the International Monetary Fund (IMF), recently predicted that many nations would go into recession next year, with the United States potentially able to avoid it.
The IMF is expecting 2023 to be a “tough year” for the world economy, even “tougher than the year we leave behind,” Georgieva said on CBS’s “Face The Nation” program. The core reason for this, she argued, is due to the slowing down of the three big economies—the United States, the European Union, and China. The EU is “severely hit” by Russia’s war in Ukraine, with half of the region expected to be in recession in 2023. China will face a “tough year” in 2023, she noted.
When it comes to the United States, Georgieva said the nation might avoid a recession. The U.S. labor market is expected to remain strong. However, this is a “mixed blessing” since a strong labor market could force the Fed to keep interest rates tighter for a longer period of time in its attempt to bring down inflation.
“We expect one-third of the world economy to be in recession. And yes, as you said, even in countries that are not in recession, it would feel like a recession for hundreds of millions of people. But if that resilience of the labor market in the U.S. holds, the U.S. would help the world to get through a very difficult year,” Georgieva said.
As to the emerging markets in developing economies, the IMF chief predicts their situation will be “direr” next year.
These nations not only have to deal with negative global trends but also high-interest rates and the appreciation of the U.S. dollar. “For those economies that have a high level of that, this is a devastation,” Georgieva said.
A strong dollar is a good news for American citizens if they go shopping abroad. For the poor nations that have taken loans in dollars, this is bad news. According to the IMF, 60 percent of the low-income nations that are in distress are in that position due to such debt.
However, Georgieva points out that countries facing such distress are not “systemically significant” to trigger a debt crisis. This includes nations like Sri Lanka, Chad, Ethiopia, Surinam, Zambia, Lebanon, and Ghana.
The risk of contagion from these countries is “not as high.” But if the list grows, then the global economy may be in for a “bad surprise,” she added.
EU, US Recession
The IMF chief’s warning comes as a recent report from the Centre for Economics and Business Research (CEBR) predicts that the world economy will likely face a recession in 2023 as a result of high-interest rates in response to high inflation.
“The question for the year ahead is how painful measures to rein in inflation will be for the world economy and if any potential economic contractions can be kept short and shallow or whether a more prolonged reduction in demand will be required to get price growth back to more comfortable levels,” it said.
In the United States, signs of recession are already popping up. The S&P 500, which fell by over 20 percent in 2022, registered its worst annual performance since 2008.
A recent Numerator survey showed that 53 percent of American consumers who planned New Year resolutions had a focus on finance, with 57 percent citing saving money as a goal and 48 percent wanting to be more diligent about tracking spending.
The possibility of the U.S. economy slipping into a recession is what motivated 48 percent of respondents to prioritize finances.