IMF hikes global growth forecast as inflation cools and household spending surprises

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The IMF has revised its global economic outlook to the upside.

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The International Monetary Fund on Monday revised up its global growth projections for the year but warned that higher interest rates and Russia’s invasion of Ukraine would still weigh on 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, that number would still mean a decline from the 3.4% expansion in 2022.

It revised its projection for 2024 to 3.1%.

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

The outlook on the global economy turned 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 a strong labor market, robust domestic consumption and business investment, and a better-than-expected adaptation to the energy crisis in Europe,” Gourynchas said. To decide

Also, China announced the reopening of its economy after a strict Covid lockdown, which is expected to contribute to higher global growth. a weak U.S. Dollar The outlook has also brightened for emerging market countries with foreign currency debt.

IMF chief warns in Davos, global scenario is better but don't be too optimistic

However, the picture is not entirely positive. IMF Managing Director Kristalina Georgieva warned earlier this month that the economy is not as bad as some had feared “but less bad still doesn’t mean better.”

“We have to be cautious,” 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 included the fact that the re-emergence of Covid in China could be halted; Inflation may remain high; Russia’s protracted invasion of Ukraine could further shake up energy and food costs; And the markets may get worse on inflationary prints than expected.

IMF calculations say that about 84% of countries will face lower headline inflation this year than in 2022, but they still forecast 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 the main policy priorities is for central banks to continue addressing increases in consumer prices.

“Clear communication from the central bank and an appropriate response to changes in data will help stabilize inflation expectations and ease wage and price pressures,” the IMF said in its latest report.

“Amidst market liquidity risks, central banks’ balance sheets will need to be opened cautiously,” it added.