One-third of the world economy will be in a global recession by 2023

January 2, 2023 by
Frank Calviño

One-third of the world economy could go into a deep global recession during 2023, warns the International Monetary Fund. This year will be more challenging for the global economy than the one we left behind, said the head of the International Monetary Fund (IMF), Kristalina Georgieva.

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"Why? Because the big three economies, the United States, the European Union, and China, are slowing down simultaneously," she said in an interview aired Sunday on CBS.

"We anticipate a third of the world economy to be in recession," he said. And he added a warning even for countries that are not in recession: "It would feel like a recession for hundreds of millions of people."

While the U.S. may end up avoiding a recession, the situation looks bleaker in Europe, which has been hit hard by the war in Ukraine, he said. "Half of the European Union will be in recession," Georgieva added to CNN.

The IMF currently projects global growth of 2.7% this year, a slowdown from 3.2% in 2022.

China will be essential for the 2023 economy 

The slowdown in China will have a dire impact globally. The world's second-largest economy weakened sharply in 2022 due to its rigid zero-covid policy, which left the country out of sync with the rest of the world, disrupting supply chains and damaging the flow of trade and investment.

Chinese leader Xi Jinping said past weekend that he expected the country's economy to expand by at least 4.4% last year, a much stronger figure than many economists had forecast, but well below the 8.4% growth rate seen in 2021.

"For the first time in 40 years, China's growth in 2022 is likely to be equal to or lower than global growth," Georgieva said. "Before covid, China was generating 34, 35, and 40% of global growth. It is no longer doing that," she said. She added that it is a "quite stressful" period for Asian economies.

"When I talk to Asian leaders, they all start with this question: 'What's going to happen to China? Is China going to come back to a higher level of growth?" he said.

Beijing abandoned restrictions over covid-19 in early December, and while its reopening may provide much-needed relief for the global economy, the recovery will be erratic and painful.

China's haphazard reopening has unleashed a wave of covid-19 cases that have overwhelmed the healthcare system, slowing consumption and production in the process.

The next few months "will be difficult for China, and the impact on Chinese growth would be negative," said Georgieva, who added that she expects the country to gradually move toward a "higher level of economic performance and end the year better than it is going to start it."

A global recession is inevitable 

According to an article published by The Economist under the signature of Zanny Minton Beddoes, the Collins English Dictionary have declared “permacrisis” to be their word of the year for 2022. 

Defined as “an extended period of instability and insecurity,” it is an ugly portmanteau that accurately encapsulates today’s world as 2023 dawns. Vladimir Putin’s invasion of Ukraine has led to the biggest land war in Europe since 1945, the most serious risk of nuclear escalation since the Cuban missile crisis, and the most far-reaching sanctions regime since the 1930s. Soaring food and energy costs have fuelled the highest inflation rates since the 1980s in many countries and the biggest macroeconomic challenge in the modern era of central banking. 

Assumptions that have held for decades—that borders should be inviolable, nuclear weapons won’t be used, inflation will be low, and the lights in rich countries will stay on—have all been simultaneously shaken.

Three shocks have combined to cause this turmoil. The biggest is geopolitical. The American-led post-war world order is being challenged, most obviously by Mr. Putin, and most profoundly by the persistently worsening relationship between America and Xi Jinping’s China. 

The resolve with which America and European countries responded to Russia’s aggression may have revitalized the idea of “the West”, particularly the transatlantic alliance. But it has widened the gap between the West and the rest, making a global recession short of inevitable. 

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