The International Monetary Fund raised its predictions for global growth for the year on Monday, but it issued a warning that rising interest rates and Russia’s invasion of Ukraine would probably still have an impact on activity.
In its most recent economic assessment, the IMF predicted that the world economy will expand by 2.9% this year, up 0.2 percentage points from its previous prediction made in October. However, that figure would still represent a decrease from the 3.4% expansion in 2022.
Additionally, it reduced its 2024 prediction to 3.1%.
As the battle against inflation and Russia’s war in Ukraine weigh on activity, growth will continue to be sluggish by historical standards, according to Pierre-Olivier Gourinchas, director of the IMF’s research division, in a blog post.
Due to better-than-expected domestic circumstances in a number of nations, including the United States, the forecast for the global economy changed from negative to more optimistic.
Gourinchas noted that the third quarter of last year’s economic growth “proved surprisingly resilient, with strong labor markets, robust household consumption and business investment, and better than expected adaptation to the energy crisis in Europe.” He also mentioned that inflationary pressures have decreased.
China also declared the reopening of its economy following severe Covid lockdowns, which is anticipated to boost global growth. The outlook for emerging market nations with foreign currency debt has also improved as a result of the falling value of the US dollar.
The image isn’t entirely rosy, though. Less terrible doesn’t yet equal good, IMF Managing Director Kristalina Georgieva cautioned earlier this month, noting that the economy was not as bad as some had feared.
At the World Economic Forum in Davos, Switzerland, Georgieva stated during a panel discussion that CNBC mediated, “We have to be cautious.”
The IMF issued a warning on Monday about a number of things that might make things worse in the months to come. These included the possibility that China’s Covid reopening would be delayed, that inflation would likely continue to be high, that Russia’s protracted invasion of Ukraine would likely increase the price of food and energy, and that markets might become unfavorable if inflation data came in worse than expected.
According to IMF estimations, 84% of countries would have lower headline inflation in 2019 compared to 2022, although they still expect annual average rates of 6.6% in 2023 and 4.3% in 2019.
As a result, the Washington, DC-based organization stated that one of the top goals for policy is for central banks to continue tackling the rise in consumer prices.
In its most recent report, the IMF stated that “clear central bank communication and adequate reactions to fluctuations in the data will help keep inflation expectations anchored and minimize wage and price pressures.”
Amid market liquidity worries, “Central banks’ balance sheets will need to be dismantled carefully,” it was stated.