The main engines of global growth—the United States, Europe, and China—will all experience weakening activity in 2023, according to the head of the International Monetary Fund on Sunday.
The new year will be "tougher than the year we leave behind," IMF Managing Director Kristalina Georgieva said on CBS's "Face the Nation" Sunday morning news program.
"Why? "Because the three big economies—the U.S., EU, and China—are all slowing down simultaneously," she said.
The IMF cut its forecast for global economic growth in 2023 in October, citing the ongoing drag from the Ukraine war 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.
Since then, China has abandoned its "zero-COVID" policy and begun a chaotic reopening of its economy, though consumers in the country remain cautious as coronavirus cases rise. President Xi Jinping called for more effort and unity in his first public remarks since the policy change in a New Year's address on Saturday as China enters a "new phase."
"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 "bushfire" of COVID infections expected in the coming months is likely to wreak havoc on the country's economy this year, weighing on both regional and global growth, according to Georgieva, who visited China on IMF business late last month.
"I was in China last week, in a bubble in a city with no COVID," she explained. "However, once people start traveling, that will not last."
"For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, as would be the impact on the region and the impact on global growth," she said.
In October's forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2%, which is on par with the fund's global outlook for 2022. At that time, it also saw annual growth in China accelerate in 2023 to 4.4%, while global activity slowed further.
Her comments, however, suggest another cut to both China and global growth outlooks may be in the offing later this month when the IMF typically unveils updated forecasts during the World Economic Forum in Davos, Switzerland.
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 U.S. is most resilient," she said, and it "may avoid recession." "We believe the labor market will remain quite strong."
However, this fact alone poses a risk because it may stymie the Fed's efforts to return US inflation to its target level after reaching its highest level in four decades last year. As 2022 came to a close, inflation appeared to have peaked, but by the Fed's preferred measure, it was still nearly three times the 2% target.
"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," Georgieva said.
Last year, in the most aggressive policy tightening since the early 1980s, the Fed lifted its benchmark policy rate from near zero in March to the current range of 4.25% to 4.50%, and Fed officials last month projected it will breach the 5% mark in 2023, a level not seen since 2007.
Indeed, the U.S. job market will be a central focus for Fed officials, who would like to see demand for labor slacken to help undercut price pressures. The first week of the new year brings a raft of key data on the employment front, including Friday's monthly nonfarm payrolls report, which is expected to show the U.S. economy minted another 200,000 jobs in December and the jobless rate remained at 3.7%, near the lowest since the 1960s.