A THIRD of the world economy will be in recession in 2023, the head of the International Monetary Fund (IMF) has warned.

Kristalina Georgieva said “hundreds of millions” of people would feel the pinch – even in countries not actively in recession.

The US, China, the EU and the UK are all expected to see their economies slow. The impact of the war in Ukraine is among the primary drivers of the recession, experts have said, because of its roll in triggering the worldwide inflation crisis.

Georgieva told the CBS news programme Face the Nation: “We expect one third of the world economy to be in recession.

“Even countries that are not in recession, it would feel like recession for hundreds of millions of people.”

It comes as City observers predicted a prolonged downturn on the London markets after a gloomy start to the year.

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The FTSE 100 Index is expected to start the year on the back foot, as Britain is caught in the grip of a recession and rising interest rates, to calm painful price hikes.

But it is seen as being a year of two halves on the market, according to Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown.

She said: “The FTSE 100 is expected to dip back as the effects of the recession are felt, as even international revenue streams won’t fully protect UK listed companies from the impact of the contraction.

“The war in Ukraine, which set off the inflation tsunami in 2022, is entrenched and, although scorching commodity prices have come down, the repercussions are still being felt through stubbornly high consumer prices.

“However, there may begin to be some respite on the stock market in the second half of the year after the price spiral dips and central bank policymakers press pause on rate rises.”

She said the prospect of inflation cooling at the end of the year, as the cost of living crisis dampens household and business spending, may allow central banks in the UK and abroad to take their foot off the rates pedal.

“While output over the first half of the year will disappoint, there is a chance that growth in the latter part of 2023 could defy expectations as central banks reach peak interest rates and inflation cools off allowing them to press pause on rate rises,” said Streeter.

Another factor that will influence stock markets worldwide is the reopening of China as it relaxes Covid restrictions, which would ease pressures on supply chains.

But Ipek Ozkardeskaya, senior analyst at Swissquote Bank, said this could be a double-edged sword.

“The good news with China’s reopening is that it should boost global growth,” she said.

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“The bad news with China’s reopening is that it will not only boost global growth, but also energy and commodity prices – hence inflation, the interest rate hikes from central banks and potentially the global Covid cases – which could then give birth to a new, and a dangerous Covid variant, which would, in return, bring the restrictive Covid measures back on the table, and hammer growth.”

On the bright side, China’s revival should provide a welcome boost to the FTSE 100, given that the top flight is largely made up of firms that make their earnings overseas, such as mining giants.

“If the Chinese reopening brings along another bump in inflation due to higher energy and commodity prices, the FTSE 100 could continue offering a good shelter to those willing to hedge against an energy-led global inflation to temper the negative effects,” she added.

But it may be a different picture in the wider FTSE 350, with the FTSE 250 Index more representative of the health of smaller UK firms.

“The FTSE 100’s good performance won’t change the fact that smaller, and domestic-focused companies will likely continue to suffer from high inflation, recession and perhaps another year of political turmoil as a cherry on top,” said Ozkardeskaya.