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The backstory: Over the past three years or so, the world economy has been pretty volatile, starting with hard times brought on by the COVID pandemic in 2020. Massive job losses, quarantines, lockdowns and supply chain issues affected just about every economic sector worldwide. By the end of 2020, things started looking up again as COVID vaccines became available to people worldwide, although the global supply chain was still struggling. Then, when Russia invaded Ukraine in early 2022, the world economy stumbled again. Energy and oil prices and supplies have been up and down in response, especially for countries that rely heavily on Russian energy.
More recently: Last October, the IMF warned that more than a third of the global economy would contract in 2023. It also said there’s a 25% chance of global GDP growing by less than 2% this year, which would put us in a global recession.
The development: The IMF is sticking with that prediction from October. IMF Managing Director Kristalina Georgieva said in an interview with CBS on Sunday that even for countries that aren’t in a recession, it would still feel like one for hundreds of millions of people. She added that although the US might be able to avoid a recession, things aren’t looking great in Europe, which is so heavily hit by the war in Ukraine. Georgieva predicts that half of the EU will be in a recession this year. China also faces what Georgieva calls a “tough year,” as its economy hasn’t been growing at the pace its set for the past 40 years. But, she added that she expects the country to move to a “higher level of economic performance, and finish the year better off than it is going to start the year.”
“We expect one-third of the world economy to be in recession,” Georgieva told CBS’s ‘Face the Nation’ in a January 1 interview. “Why? Because the three big economies – US, EU, China – are all slowing down simultaneously.”
“For the first time in 40 years China’s growth in 2022 is likely to be at or below global growth,” Georgieva said in the interview. “Before COVID, China would deliver 34, 35, 40% of global growth. It is not doing it anymore.”
“If [the US] were to have a much more severe recession, that likely would be stimulated by another large negative supply shock emanating from the energy sector,” said Joe Brusuelas, the chief economist at the tax consulting firm RSM.