The International Monetary Fund raises its forecast for global growth as inflation slows

The International Monetary Fund on Monday revised up its forecast for global growth for this year, but warned that higher interest rates and Russia’s invasion of Ukraine are likely to weigh on activity.

In its latest economic update, the International Monetary Fund said the global economy will grow 2.9% this year – an improvement of 0.2 percentage points from its previous forecast in October. However, this number still means down from an expansion of 3.4% in 2022.

It also revised its forecast for 2024 to 3.1%.

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

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

“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, strong household consumption and business investment, and a better-than-expected adjustment to Europe’s energy crisis,” Gorinchas said, also noting that inflationary pressures had subsided.

In addition, China has announced the reopening of its economy after strict Covid lockdowns, which is expected to contribute to an increase in global growth. weaker U.S. dollar It also contributed to increasing the horizons of emerging market countries that have debts in foreign currency.

However, the picture is not entirely positive. The managing director of the International Monetary Fund, Kristalina Georgieva, warned earlier this month that the economy was not as bad as some had feared “but less bad does not mean good yet”.

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

The International Monetary Fund warned on Monday that several factors could worsen the outlook in the coming months. These included the fact that Covid reopenings in China could be halted; inflation can remain high; A prolonged Russian invasion of Ukraine could further shake up energy and food costs; Markets may turn into chaos as a result of worse-than-expected inflation indicators.

The International Monetary Fund calculates that about 84% of countries will experience lower headline inflation this year than in 2022, but still expects an average annual rate of 6.6% in 2023 and 4.3% the following year.

As such, the Washington, D.C.-based institution said a key policy priority is for central banks to continue to address the rise in consumer prices.

“Clear communications to the central bank and appropriate responses to shifts in data will help keep inflation expectations steady and reduce wage and price pressures,” the IMF said in its latest report.

“Central banks’ balance sheets need to be unpacked cautiously amid market liquidity risks,” she added.