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According to the director of the International Monetary Fund (IMF), one-third of the global economy will be in recession this year.
Kristalina Georgieva said 2023 would be “tougher” than last year due to declining economies in the United States, Europe, and China.
The Ukraine war, rising prices, higher interest rates, and the expansion of Covid in China are all dragging on the global economy.
In October, the IMF cut its global economic growth prediction for 2023.
In October, the IMF lowered its prediction for global economic growth in 2023, citing the Ukraine conflict and higher interest rates as central banks worldwide struggle to limit increasing prices.
Since then, China has abandoned its zero-Covid policy and begun to reopen its economy, even though coronavirus infections have spread fast throughout the country.
Ms. Georgieva projected that China, the world’s second-largest economy, would have a disastrous start in 2023.
The IMF is a multinational organization with 190 member countries. They are working together to try to stabilize the global economy. One of its duties is to act as an early economic warning system.
Ms. Georgieva’s words will enrage people worldwide, particularly in Asia, which had a difficult year in 2022.
Inflation has been progressively rising across the region, owing mostly to the situation in Ukraine, while increasing interest rates have also impacted families and businesses.
According to data released over the weekend, China’s economy will remain sluggish by the end of 2022.
According to the official purchasing managers’ index (PMI) for December, China’s industrial activity decreased for the third month in a row, at the fastest rate in over three years, as coronavirus infections spread throughout the country’s industries.
According to a survey done by China Index Academy, one of the country’s main independent property research firms, home prices in 100 cities fell for the sixth straight month in the same month.
President Xi Jinping urged more effort and unity as China begins a “new chapter” in his first public remarks since the policy change on Saturday.
Because of the US economic crisis, there is less demand for products made in China and other Asian countries such as Thailand and Vietnam.
Higher interest rates make borrowing more expensive; hence, for both reasons, enterprises may decide to refrain from investing in expanding their operations.
Lack of growth can prompt investors to withdraw money from an economy, leaving governments, particularly poorer ones, with less cash to pay for crucial imports such as food and energy.
During these slowdowns, currency values can fall concerning those of more prosperous nations, worsening the problem.
Higher interest rates on loans impact economies at the government level as well, particularly in emerging nations that may struggle to return their debts.
For decades, the Asia-Pacific region has relied on China as a major trading partner and source of economic assistance in times of crisis.
Asian economies are now struggling with the long-term economic ramifications of China’s pandemic management.
Production of products such as Tesla electric cars and Apple iPhones may resume after Beijing halts zero-Covid.
However, because inflation has peaked, new demand for gasoline and iron ore will likely raise prices.
What is the IMF, and why is it important?
The International Monetary Fund (IMF) is a global institution with 190 member countries. They are working together to try to stabilize the global economy.
A country may apply to join if it meets specific criteria. These include reporting economic statistics and paying a fee known as a quota subscription. The more the country’s wealth, the greater its contribution.
The IMF monitors and helps the economy in three ways:
Following economic and financial developments. It monitors how countries perform and potential threats, such as trade conflicts or the uncertainty caused by Brexit.
advising its members on how to strengthen their economies
Issuing short-term loans and assistance to poor countries.
These loans are usually financed through quota subscriptions. Argentina received the highest IMF loan in history in 2018, reaching $57 billion (£53.4 billion).
The IMF has a total loan capability of $1 trillion to its members.
Read Also: IMF says the worst recession is yet to come
What are the IMF’s main achievements?
The IMF is frequently referred to as a lender of last resort. This is because countries rely on it for financial assistance in times of crisis.
According to Harvard University economist Benjamin Friedman, gauging its efficacy is challenging because it is impossible to determine if its interventions have made things better or worse than the alternative.
However, some applauded the Fund’s engagement in supporting Mexico after it indicated in the early 1980s that it would be unable to repay its loans.
Brazil obtained IMF loans in 2002 to avoid defaulting on its obligations. Following that, the administration quickly turned the economy around and paid off its debt two years ahead of schedule.
