For much of the global economy, 2023 is going to be a tough year as the main engines of global growth – the United States, Europe and China – all experienced weakening activity, the head of the International Monetary Fund said Sunday.

The new year is going to be “tougher than the year we leave behind,” IMF Managing Director Kristalina Georgieva said on the CBS Sunday morning news program “Face the Nation.”

“Why? Because the three big economies – the U.S., EU and China – are all slowing down simultaneously,” she said.

In October, the IMF cut its outlook for global economic growth in 2023, reflecting the continuing drag from the war in Ukraine as well as inflation pressures and the high interest rates engineered by central banks like the U.S. Federal Reserve aimed at bringing those price pressures to heel.

Since then, China has scrapped its zero-COVID policy and embarked on a chaotic reopening of its economy, though consumers there remain wary as coronavirus cases surge. In his first public comments since the change in policy, President Xi Jinping on Saturday called in a New Year’s address for more effort and unity as China enters a “new phase.”

“For the first time in 40 years, China’s growth in 2022 is likely to be at or below global growth,” Georgieva said.

Moreover, a “bushfire” of expected COVID infections there in the months ahead are likely to further hit its economy this year and drag on both regional and global growth, said Georgieva, who traveled to China on IMF business last month.

“I was in China last week, in a bubble in a city where there is zero COVID,” she said. “But that is not going to last once people start traveling.”

“For the next couple of months, it would be tough for China, and the impact on Chinese growth would be negative, the impact on the region will be negative, the impact on global growth will be negative,” she said.

In October’s forecast, the IMF pegged Chinese gross domestic product growth last year at 3.2% — on par with the fund’s global outlook for 2022. At that time, it also saw annual growth in China accelerating in 2023 to 4.4% while global activity slowed further.

Her comments, however, suggest another cut to both the 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.

US economy ‘most resilient’

Meanwhile, Georgieva said, the U.S. economy is standing apart and may avoid the outright contraction that is likely to afflict as much as a third of the world’s economies.

The “U.S. is most resilient,” she said, and it “may avoid recession. We see the labor market remaining quite strong.”

But that fact on its own presents a risk because it may hamper the progress the Fed needs to make in bringing U.S. inflation back to its targeted level from the highest levels in four decades touched last year. Inflation showed signs of having passed its peak as 2022 ended, but by the Fed’s preferred measure, it remains nearly three times its 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.
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За словами голови уряду, в 2022 році вдалося зберегли керованість економічними та фінансовими процесами, а дві третини всіх бюджетних коштів складає внутрішній ресурс держави
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Croatia on Sunday switched to the euro and entered Europe’s passport-free zone — two major milestones for the country after joining the EU nearly a decade ago.

At midnight local time (2300 GMT Saturday) the Balkan nation bid farewell to its kuna currency and became the 20th member of the eurozone.

It is the 27th nation in the passport-free Schengen zone, the world’s largest, which enables more than 400 million people to move freely around its members.

Experts say the adoption of the euro will help shield Croatia’s economy at a time when inflation is soaring worldwide after Russia’s invasion of Ukraine sent food and fuel prices through the roof.

But feelings among Croatians are mixed. While they welcome the end of border controls, some worry about the euro switch, with right-wing opposition groups saying it only benefits large countries such as Germany and France.

Many Croatians fear that the introduction of the euro will lead to a hike in prices, in particular that businesses will round up price points when they convert.

‘Elite club’

For tourist agency employee Marko Pavic, “Croatia joins an elite club.”

“The euro was already a value measure — psychologically it’s nothing new — while entry into Schengen is fantastic news for tourism,” he told AFP.

Use of the euro is already widespread in Croatia.

Croatians have long valued their most precious assets such as cars and apartments in euros, displaying a lack of confidence in the local currency.

About 80% of bank deposits are denominated in euros, and Zagreb’s main trading partners are in the eurozone.

Officials have defended the decision to join the eurozone and Schengen, with Prime Minister Andrej Plenkovic saying Wednesday that they were “two strategic goals of a deeper EU integration.”

Croatia, a former Yugoslav republic of 3.9 million people that fought a war of independence in the 1990s, joined the European Union in 2013.

“The euro certainly brings (economic) stability and safety,” Ana Sabic of the Croatian National Bank (HNB) told AFP.

Experts say the adoption of the euro will lower borrowing conditions amid economic hardship.

Croatia’s inflation rate reached 13.5% in November compared to 10% in the eurozone.

Analysts stress that eastern EU members with currencies outside of the eurozone, such as Poland or Hungary, have been even more vulnerable to surging inflation.

Borders gone

As some Croatians lamented the demise of the national currency, HNB governor Boris Vujcic said while it was a sentimental moment for him, it was the “only reasonable politics.”

The kuna was adopted in 1994, during the independence war. 

Kuna means marten, a weasellike carnivore whose fur was used as currency in the Middle Ages.

Early Sunday, Vujcic will symbolically withdraw euros from a cash machine in downtown Zagreb.

Interior and foreign ministers will attend brief ceremonies at border crossings with Croatia’s EU peers Slovenia and Hungary respectively while the bloc’s chief Ursula von der Leyen is to visit the country later Sunday.

Local papers hailed the two events on Saturday, with the best-selling Vecernji List daily labelling them the “crown of (Zagreb’s) EU membership.”

Croatia’s entry into the Schengen borderless area will also provide a boost to the Adriatic nation’s key tourism industry, which accounts for 20% of its GDP.

Previously long queues at the 73 land border crossings with Slovenia and Hungary will become history.

Border checks will end on March 26 at airports because of technical issues.

Croatia will still apply strict border checks on its eastern border with non-EU neighbors Bosnia, Montenegro and Serbia. 
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