Sunday, February 5

Global recession on the horizon: IMF warns of economic downturn

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The International Monetary Fund (IMF) has issued a warning that a third of the global economy will fall into recession this year.

Kristalina Georgieva, the head of the organization, stated that 2023 will be even more difficult than the previous year as the economies of the US, EU, and China experience a slowdown.

This comes as a result of the ongoing war in Ukraine, rising prices, higher interest rates, and the spread of COVID-19 in China, all of which are weighing on the global economy.

The IMF had already lowered its outlook for global economic growth in 2023 in October due to these issues.

Georgieva also cautioned that China, the world’s second largest economy, will face a challenging start to the year, with negative impacts on both Chinese and global growth.

The IMF, comprising 190 member countries, works to stabilize the global economy and serves as an early warning system for economic issues.

The potential global recession is causing concern worldwide, particularly in Asia, which has already faced difficult economic conditions in 2022 due to rising inflation and higher interest rates.

Data released over the weekend indicated potential weakness in China’s economy at the end of 2022. The official purchasing managers’ index (PMI) for December showed that China’s factory activity shrank for the third month in a row and at the fastest rate in almost three years as coronavirus infections spread in the country’s factories.

A survey conducted by one of China’s largest independent property research firms showed that home prices in 100 cities declined for the sixth consecutive month in the same month, the China Index Academy.

In his first public comments since implementing a policy change, President Xi Jinping of China called for increased unity and effort as the country enters a “new phase”.

The downturn in the US also means there is less demand for the products made in China and other Asian countries including Thailand and Vietnam. Higher interest rates also make borrowing more expensive, leading companies to potentially avoid investing in expanding their businesses.

This lack of growth can cause investors to pull money out of an economy, leading to countries, particularly poorer ones, having less cash to pay for crucial imports such as food and energy. In these types of slowdowns, a currency can lose value against those of more prosperous economies, further compounding the issue.

Higher interest rates also impact economies at the government level, particularly emerging markets, which may struggle to repay their debts.

For decades, the Asia-Pacific region has relied on China as a major trading partner and for economic support during times of crisis. Now, Asian economies are facing the lasting economic effects of China’s handling of the pandemic.

The production of products such as Tesla electric cars and Apple iPhones may resume as Beijing ends its zero-Covid policy. However, renewed demand for commodities like oil and iron ore may not be enough to offset the negative effects on Asian economies.

The IMF’s warning of a potential global recession is cause for concern, as a recession can lead to job losses, business failures, and overall economic decline. Governments and businesses around the world are closely monitoring the situation and considering measures to mitigate the potential impacts.

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