The International Monetary Fund expects that global economic growth will begin to rebound later this year and that a worldwide recession can be averted if China continues to ease its pandemic restrictions and Russia’s war in Ukraine does not worsen.
Kristalina Georgieva, the Managing Director of the IMF, expressed optimism that the recent run of downgrades to global growth could be coming to an end and that an economic expansion could accelerate next year. Her comments, suggested that the storm clouds hanging over the world economy could soon dissipate. The IMF, which is expected to release its new global forecasts later this month, projected in October that the world output would slow to 2.7% in 2023 from 3.2% in 2022.
“We think we’ve bottomed out,” Georgieva said. “We are going to see, toward the end of 2023, hopefully a reversal in trend toward a higher growth trajectory in 2024.” Despite her optimism, Georgieva warned that this would be a “tough year” and that the global economy continues to be fragile. She noted that inflation remains stubbornly high and that the cost-of-living crisis was not over.
Georgieva said it was impossible to predict what crisis was around the corner and that the world economy was more prone to shocks. The outcome of Russia’s war in Ukraine is particularly hard to predict, and it remains unclear how long labor markets can continue to be resilient in the face of rising interest rates.
Central banks around the world, including the Federal Reserve, are raising borrowing costs to try and tame the most rapid inflation in decades. In the United States, the Fed is actively trying to slow the economy — and the labor market — to get price increases under control.
Still, Georgieva said that fears about a global energy shock that could plunge the world into a recession have not materialised. And China, which had adopted a strict zero-COVID policy over the past two years, appears poised to contribute to global growth again this year as a result of its recent decision to end its lockdown policies to contain the coronavirus spread. “What is most important is for China to stay the course, not to back off from that reopening,” Georgieva said.
The Managing Director also expressed optimism that the U.S. economy was poised for a “soft landing” and that even if a recession did occur, it would likely be mild. Georgieva noted that consumer demand remained strong in the United States and that it was shifting back to services after a period in which there was too much appetite for goods that were in short supply.
The changing power dynamics in Congress could cloud the outlook this year, as Republicans have threatened to wage a battle over raising the U.S. debt limit — which caps the country’s ability to borrow money — unless Democrats agree to spending cuts or other concessions. Despite Republican comments suggesting they are willing to allow the United States to default on its debt, Georgieva said that she believed that such an outcome — which would be catastrophic for the global financial system — would not transpire.
“The discussions of debt limits are always quite intense,” Georgieva said. “History teaches us that in the end, a solution is being found.” Although advanced economies are poised for a rebound, many poor countries continue to face the prospect of recessions or defaults because of heavy debt burdens.
Earlier this week, the World Bank projected that global growth would slow to 1.7% this year, a sharp downgrade from its previous projection of 3%, and warned of a “crisis” facing developing economies.
