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IMF Raises Global Growth Projections Amid Inflation Cooling and Household Spending Surprises



IMF increases global growth projections

The International Monetary Fund (IMF) raised its predictions for global growth for the year on Monday, but it issued a warning that higher interest rates and Russia’s invasion of Ukraine would probably still have an impact on activity.

In its most recent economic update, the IMF predicted that the world economy will grow by 2.9% this year, up 0.2 percentage points from its previous prediction made in October. That figure would represent a reduction from the 3.4% expansion in 2022, though.

The IMF also changed its projection for 2024 down to 3.1%.

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

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.

“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 stated, also mentioning that inflationary pressures have gone down.

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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.

Everything is not entirely positive, though. According to IMF Managing Director Kristalina Georgieva, the economy was not as bad as some feared “but less bad doesn’t quite yet mean good.”

“We have to be cautious,” Georgieva mentioned while speaking at 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 this year 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.

“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’s most recent report mentioned.

“Central banks’ balance sheets will need to be unwound carefully, amid market liquidity risks,” it went on to say.

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