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IMF reviews global forecast over inflation, household spending surprises

The International Monetary Fund on Monday revised upward its global growth projections for the year 2023, but warned that higher interest rates and Russia’s invasion of Ukraine would likely still have negative impact.

In its latest economic update, the IMF said the global economy will grow by 2.9% this year which represents a 0.2 percentage point improvement from its previous forecast in October.

However, that number would still mean a fall from an expansion of 3.4% in 2022 and it also revised its projection for 2024 down to 3.1%.

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

The outlook turned more positive on the global economy due to better-than-expected domestic factors in several countries, such as the United States and inflationary pressures have come down.

However, the picture isn’t totally positive as IMF Managing Director Kristalina Georgieva warned earlier this month that the economy was not as bad as some feared “but less bad doesn’t quite yet mean good.”

The IMF on Monday warned of several factors that could deteriorate the outlook in the coming months.

These included the fact that China’s Covid reopening could stall; inflation could remain high; Russia’s protracted invasion of Ukraine could shake energy and food costs even further; and markets could turn sour on worse-than-expected inflation prints.

From IMF’s calculations, about 84% of nations will face lower headline inflation this year compared to 2022, but they still forecast an annual average rate of 6.6% in 2023 and of 4.3% the following year.

Writing by Tersoo Nicholas