The IMF warns that threats to global economic recovery are growing, as is a “dangerous divergence” in recovery rates between richer and poorer countries.

The International Monetary Fund was blunt in its latest global economic outlook, released on Tuesday, warning that the risks to economic recovery from last year’s COVID-19 disruptions are growing, as is a “dangerous divergence” between richer and poorer countries.

The IMF reduced its headline forecast for global growth this year by 0.1 percent to 5.9 percent, while maintaining its projections for 2022 at 4.9 percent.”This modest headline revision, however, masks significant downgrades for some countries,” the fund said, adding that “the outlook for the low-income developing country group has darkened significantly due to worsening pandemic dynamics.

In a virtual news conference on Tuesday, IMF chief economist Gita Gopinath elaborated on those pandemic dynamics, saying that global supply shortages in the face of resurgent demand are causing commodity price inflation, which is being passed on to consumers.
“Food prices have risen most sharply in low-income countries, where food insecurity is most acute, adding to the burdens of poorer households and raising the risk of social unrest,” she said.

Furthermore, as debt levels rise, inflation soars, and their currencies weaken against the US dollar, emerging and developing economies are being forced to raise interest rates in order to keep inflation expectations in check. The pandemic’s “continued grip” on global society, according to Gopinath, underpins challenges such as rising food inflation, food insecurity and increased risk-taking in financial markets.

“The top priority is thus to vaccinate at least 40% of the population in every country by the end of this year, and 70% by the middle of next year,” Gopinath said. Almost 60% of the population in advanced economies is fully vaccinated, with some even receiving booster shots. At the same time, the IMF reported that roughly 96 percent of the population in low-income countries has yet to receive a single COVID vaccine.

The recovery gap between rich and poor countries is expected to widen, with the IMF predicting that advanced economies will re-establish their pre-pandemic trend path next year and outperform it by 0.9 percent in 2024. By contrast, the fund predicted economic growth in emerging and developing economies – minus China – would remain 5.5 percent below pre-pandemic forecasts in 2024, “resulting in a larger setback to improvements in their living standards”.

While the IMF predicted that inflation would return to pre-pandemic levels by the middle of next year, a more detailed examination reveals a wide disparity in national outlooks. The fund predicted that headline inflation in advanced economies would peak in the final months of this year and then fall to around 2% by mid-2022. For emerging markets and developing economies, headline inflation is expected to peak at 6.8 percent later this year before falling to about 4 percent by the middle of next year “with risks tilted to the upside over the medium term”.

Recession alert! IMF chief warns third of global economy likely to plunge into recession this year.

Global recession: The year 2023 will be far more difficult than the previous one, as the world’s main engines—the United States, China, and Europe—may face severe turbulence amid the ongoing Russia-Ukraine war and the COVID-19 pandemic. According to Kristalina Georgieva, managing director of the International Monetary Fund (IMF), nearly a third of the global economy will be in recession this year.

She stated on the CBS Sunday morning news program Face the Nation that the ongoing war and the emergence of the new COVID wave in China have had an impact on the economy. “We anticipate that one-third of the global economy will be in recession. Even in non-recessionary countries, it would feel like a recession for hundreds of millions of people “she said. Notably, this was not the first time the IMF Chief projected such a dire scenario; in October of last year, she warned that the war and any potential outbreak of the deadly virus could plunge the world into recession.

“We anticipate that one-third of the global economy will be in recession. Even in non-recessionary countries, it would feel like a recession for hundreds of millions of people,” she added. The IMF cut its forecast for global economic growth in 2023 in October, citing the ongoing drag from the Ukraine conflict, as well as inflationary pressures and the high-interest rates engineered by central banks such as the US Federal Reserve to counteract those price pressures.

China, the world’s second-largest economy, is likely to grow at or below global growth for the first time in 40 years, according to Georgieva, as Covid-19 cases rise following the repeal of the country’s ultra-strict zero-Covid policy. “China’s growth in 2022 is likely to be at or below global growth for the first time in 40 years,” Georgieva said. Furthermore, a slew of Covid infections expected in the coming months is likely to wreak havoc on the country’s economy and drag on both regional and global growth, according to Georgieva, who visited China on IMF business late last month.

“It will be difficult for China in the coming months, and the impact on Chinese growth will be negative, the impact on the region will be negative, and the impact on global growth will be negative,” she said. Meanwhile, the US economy, according to Georgieva, is standing out and may avoid the outright contraction that is expected to affect up to a third of the world’s economies.

“The United States is the most resilient,” she said, adding that the country may avoid a recession. We believe the labor market will remain quite strong.” “This is a mixed blessing because if the labor market remains strong, the Fed may need to keep interest rates tighter for longer to keep inflation under control,” Georgieva said.

The US labor market will be a central focus for Federal Reserve officials who want to see labor demand fall in order to help alleviate price pressures. The first week of the new year brings a slew of key employment data, including Friday’s monthly nonfarm payrolls report, which is expected to show the US economy added 200,000 jobs in December and the unemployment rate remained at 3.7 percent, near the lowest since the 1960s.

The World Bank cut its China growth forecast for the year last month as the pandemic and property sector weaknesses hit the world’s second-largest economy. The institution reduced its forecast to 2.7 percent from 4.3 percent in June, according to a statement. It also reduced its 2019 forecast from 5.2 percent to 4.3 percent.

Both figures fall far short of Beijing’s year-end GDP growth target of around 5.5 percent, which many analysts believe is now out of reach. “Economic activity in China continues to track the ups and downs of pandemic outbreaks, with growth slowdowns followed by uneven recoveries,” according to the World Bank.

“Real GDP growth is forecast to reach 2.7 percent this year (2022), before recovering to 4.3 percent in 2023, as the economy reopens.” After years of abrupt lockdowns, mass testing, lengthy quarantines, and travel restrictions, China abruptly abandoned its zero-Covid policy this month. However, business disruption has continued as the number of cases has increased and some restrictions remain in place. Official figures no longer capture the full picture of domestic infections, according to health officials, now that mass testing requirements have been eliminated.

China faces difficult times ahead.

Furthermore, Georgieva predicted that China, the world’s second-largest economy, will grow at or below the global rate. If China achieves the projected growth rate, Beijing’s growth rate will fall below the normal trend for the first time in 40 years. She blamed the collapse on Chinese President Xi Jinping’s decision to repeal the ultra-strict zero-Covid policy.

“It will be difficult for China in the coming months, and the impact on Chinese growth will be negative, the impact on the region will be negative, and the impact on global growth will be negative,” she said.

Georgieva also warned that the “fragmentation” of the global economy into competing political blocs could lead to persistent inflation. If geopolitical tensions force companies to relocate their supply chains, such as out of China, production may become less efficient and more expensive. And central bank rate hikes were ineffective. “We would all be poorer if we lost the benefits of a more integrated global economy,” she said.

The year 2023 will be difficult for much of the global economy as the main engines of global growth – the United States, Europe, and China – all experience weakening activity, according to the head of the International Monetary Fund. “The new year will be more difficult than the one we leave behind,” IMF managing director Kristalina Georgieva said on CBS Sunday morning news program Face the Nation on Sunday. “Why? Because the three major economies – the United States, the European Union, and China – are all slowing at the same time,” she explained.

‘Negative Trends’

According to data released on Saturday, China’s abrupt reversal of its Covid Zero policy slowed economic activity in December to the slowest rate since February 2020, as the virus swept through major cities, causing people to stay at home and businesses to close. The global slowdown “translates into negative trends globally — when we look at emerging markets in developing economies, the picture is even grimmer,” Georgieva said.

Manufacturing purchasing manager index numbers released on Monday showed negative readings across Europe, Turkey, and South Korea. Data for Malaysia, Taiwan, Vietnam, the United Kingdom, Canada, and the United States will be released on Tuesday. Nonetheless, the outlook for the world’s largest economy may provide some relief.

“If the US labor market’s resilience holds, the US will help the world get through a very difficult year,” Georgieva said.