The International Monetary Fund (IMF) raised its global growth forecast for 2023 on Tuesday, citing “surprisingly resilient” demand in the United States and Europe, falling oil prices, and China’s reopening of its economy after the end of its Zero-Covid policy. However, the fund also warned that rising interest rates and Russia’s invasion of Ukraine would likely still weigh on activity.
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.
With the full impact of harsher central bank interest rate hikes slowing demand, the IMF reduced its global growth prediction for 2024 to 3.1% from 3.2% in October.
The global economy’s outlook has improved due to better-than-expected domestic factors in various countries, including the United States.
“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,” said Pierre-Olivier Gourinchas, director of the research department at the IMF.
The fund also noted that inflationary pressures have come down.
The reopening of the Chinese economy after years of Covid lockdowns is another factor that will likely boost global expansion. There has been an improvement in the outlook for emerging market countries that have debt denominated in foreign currency due to the decline in the value of the U.S. dollar.
Unfortunately, it’s not a completely rosy sight. The IMF highlighted various risks that might worsen the outlook in the coming months. Some of these risks included a halt in China’s Covid reopening, persistently high inflation, a further rattling of energy and food prices due to Russia’s prolonged invasion of Ukraine, and a negative reaction from the markets to higher-than-expected inflation readings.