On Monday, the International Monetary Fund (IMF) revised its global growth projections for the year, predicting an increase of 2.9%, a 0.2 percentage point improvement from its October forecast.
However, the growth is expected to decline from 3.4% in 2022. Despite the upward revision, the IMF warned that higher interest rates and Russia’s invasion of Ukraine could still hinder economic activity.
The IMF’s projection for 2024 has also been revised downwards to 3.1%.
According to Pierre-Olivier Gourinchas, director of the IMF’s research department, growth will remain below historical levels due to the challenges of controlling inflation and the impact of Russia’s conflict in Ukraine on economic activity.
The outlook for the global economy has improved due to favorable domestic conditions in several countries, particularly the United States, where growth has been stronger than expected in the third quarter of last year due to a robust labor market, increased household consumption and business investment, and successful adaptation to the energy crisis in Europe.
According to Gourinchas, the easing of inflationary pressures and China’s reopening of its economy following Covid-related lockdowns are also expected to contribute to higher global growth. Furthermore, the weakened U.S. dollar is beneficial for emerging market countries with foreign currency debt.
While the outlook is improved, it’s not without challenges. IMF Managing Director Kristalina Georgieva recently warned that the economy is not yet good, despite being better than feared. She emphasized the need for caution.
According to the IMF, several factors could still negatively impact the outlook in the near future, including a possible slowdown in China’s economic recovery from Covid, sustained high inflation levels, further disruptions to energy and food prices due to Russia’s ongoing conflict in Ukraine, and potential market reactions to worse-than-expected inflation data.
