The International Monetary Fund has raised its global growth forecast for the year, but warns that increased interest rates and Russia's invasion of Ukraine will continue to weigh on activity.
The global economy's outlook has improved as a result of better-than-expected domestic conditions in various countries, including the United States.
The IMF predicted in its latest economic update that the global economy will grow 2.9% this year, a 0.2 percentage point increase from its previous prediction in October. However, this figure represents a drop from 3.4% growth in 2022.
"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 research department at the IMF, said in a blog post.
Additionally, it reduced its 2024 prediction to 3.1%.
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 due to a weakening U.S. dollar.
"Economic growth proved surprisingly resilient in the third quarter of last year, with strong labor markets, robust household consumption, and business investment, and better-than-expected adaptation to the energy crisis in Europe," Gourinchas said, also noting that inflationary pressures have come down.
However, the picture isn't entirely rosy. Earlier this month, IMF Managing Director Kristalina Georgieva warned that the economy was not as terrible as some had anticipated, but "less bad does not yet mean good."
"We have to be cautious," Georgieva said during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland.
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 continue to be high, that Russia's protracted invasion of Ukraine would increase the cost of food and energy, and that markets might become unstable in response to worse-than-anticipated inflation readings.
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.
Therefore, the institution based in Washington, DC, stated that one of the top policy concerns is for central banks to continue tackling the rise in consumer prices.
"Clear central bank communication and appropriate reactions to shifts in the data will help keep inflation expectations anchored and lessen wage and price pressures," the IMF said in its latest report.
