IMF raises global growth forecast as inflation slows
The IMF has revised its global economic outlook upwards.
Norberto Duarte | Afp | Getty Images
The International Monetary Fund on Monday revised up its global growth forecasts for the year, but warned that higher interest rates and Russia’s invasion of Ukraine are likely to continue to dampen activity.
In its latest economic update, the IMF said the global economy will grow 2.9% this year – representing a 0.2 percentage point improvement from its previous forecast in October. However, this figure would still represent a drop from a 3.4% expansion in 2022.
It also revised the estimate for 2024 down to 3.1[ads1]%.
“Growth will remain weak by historical standards as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the IMF’s research department, said in a blog post.
The outlook became more positive for the global economy due to better-than-expected domestic factors in several countries, such as the United States.
“Economic growth proved surprisingly robust in the third quarter of last year, with strong labor markets, robust household consumption and business investment, and better-than-expected adjustment to the energy crisis in Europe,” Gourinchas said, also noting that inflationary pressures have eased.
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 American dollar has also brightened the outlook for emerging market countries that have debt in foreign currency.
But the picture is not entirely positive. IMF Managing Director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared, “but less bad does not yet mean good.”
“We have to be careful,” Georgieva said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.
The IMF warned on Monday against several factors that could worsen the outlook in the coming months. These included the fact that China’s Covid reopening could stall; inflation may remain high; Russia’s protracted invasion of Ukraine could shake energy and food costs further; and markets can sour on inflation prints that are worse than expected.
The IMF’s calculations say that around 84% of nations will face lower headline inflation this year compared to 2022, but they still project an annual average rate of 6.6% in 2023 and 4.3% the following year.
As such, the Washington, DC-based institution said one of its key policy priorities is for central banks to continue to address rising consumer prices.
“Clear central bank communication and appropriate responses to changes in the data will help keep inflation expectations anchored and reduce wage and price pressures,” the IMF said in its latest report.
“Central banks’ balance sheets need to be wound down carefully, amid market liquidity risks,” it added.
