The IMF raises the global growth forecast as inflation cools

The International Monetary Fund on Monday revised its global growth forecasts upward for the year, but warned that higher interest rates and the Russian invasion of Ukraine are likely to still weigh on activity.

In its latest economic update, the IMF said the global economy will grow at 2.9% this year, an improvement of 0.2 percentage points from its previous forecast in October. However, that number would still represent a decline from a 3.4% expansion in 2022.

It also revised its 2024 forecast to 3.1%.

“Growth will remain weak by historical standards as the fight against inflation and the Russian war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the IMF’s research division, said in a blog post.

The outlook for the global economy became more positive due to better-than-expected domestic factors in several countries, such as the United States.

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and a better-than-expected adjustment to the energy crisis in Europe,” said Gourinchas, who also noted that inflationary pressures have increased. come down.

In addition, China announced the reopening of its economy after strict Covid lockdowns, which is expected to contribute to higher global growth. A weaker one U.S. dollar has also improved the outlook for emerging market countries holding foreign currency debt.

However, the picture is not entirely positive. IMF director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared “but less bad doesn’t mean quite good”.

“We have to be careful,” Georgieva said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.

The IMF on Monday warned of several factors that could worsen the outlook in the coming months. These include the fact that China’s Covid reopening could slow down; inflation could remain high; Russia’s protracted invasion of Ukraine could further shake up energy and food costs; and markets could sour with worse-than-expected inflation rates.

According to IMF calculations, about 84% of countries will experience lower headline inflation this year compared to 2022, but they still forecast an annual average rate of 6.6% in 2023 and 4.3% in the next year.

As such, the Washington, D.C.-based institution said one of its top policy priorities is for central banks to continue to address the rise in consumer prices.

Clear communication from the central bank and appropriate responses to data shifts will help keep inflation expectations anchored and reduce wage and price pressures, the IMF said in its latest report.

“Central bank balance sheets will require careful unwinding amid market liquidity risks,” it added.