The International Monetary Fund said on Tuesday that the global economy is showing signs of resilience this year despite persistent inflation and a slow recovery in China, which increases the odds of avoiding a global recession except for unexpected crises.
Signs of optimism in the International Monetary Fund’s latest World Economic Outlook report may give global policymakers added confidence that their efforts to contain inflation without causing serious economic damage. However, global growth remains anemic by historical standards, and IMF economists have warned that serious risks remain.
The International Monetary Fund raised its forecast for global growth this year to 3 percent, from 2.8 percent in its forecast in April. He expected global inflation to decline from 8.7% in 2022 to 6.8% this year and 5.2% in 2024, as the effects of higher interest rates filter around the world.
The outlook was more optimistic in large part because financial markets – which had suffered from the collapse of several major banks in the US and Europe – had largely stabilized. Another major financial risk was averted in June when Congress worked to raise the US government’s borrowing cap, ensuring that the world’s largest economy continues to pay its bills on time.
The new figures come from the International Monetary Fund as the Federal Reserve is widely expected to raise interest rates by a quarter point at its meeting this week, while keeping its future options open. The Fed has aggressively raised interest rates in an effort to curb inflation, raising them from near zero as recently as March 2022 to a range of 5 percent to 5.25 percent today. Policymakers have been trying to cool the economy without crushing it and kept interest rates steady in June in order to assess how the US economy can absorb the higher borrowing costs the Fed has already agreed to.
As countries like the United States continue to grapple with inflation, the International Monetary Fund has urged central banks to stay focused on restoring price stability and strengthening financial oversight.
Federal Reserve officials will release the July interest rate decision on Wednesday, followed by a press conference with Jerome H. Powell, Chairman of the Federal Reserve. Policymakers previously predicted that they may raise prices again in 2023 beyond the expected move this week. While investors are skeptical that they will eventually make this final price move, officials will likely want to see more evidence that inflation is falling and the economy is cooling down before committing to any direction.
The International Monetary Fund said on Tuesday it expects growth in the United States to slow from 2.1 percent last year to 1.8 percent in 2023 and 1 percent in 2024. It expects consumption, which has been strong, to start to ease in the coming months as Americans withdraw their savings and raise interest rates further.
Growth in the eurozone is expected to be just 0.9 percent this year, hurt by a contraction in Germany, the region’s largest economy, before picking up to 1.5 percent in 2024.
European policy makers are still busy fighting to slow inflation. On Thursday, the European Central Bank is expected to raise interest rates for the 20 countries that use the euro currency to the highest level since 2000. But after a year of raising interest rates, central bank policymakers are trying to shift focus from how prices can continue to rise to how long they might stay at levels meant to constrain the economy and eliminate domestic inflationary pressures from rising wages or corporate earnings.
Policymakers raised interest rates as the economy proved a bit more resilient than expected this year, buoyed by a strong labor market and lower energy prices. But the economic outlook remains relatively weak, and some analysts expect the European Central Bank to come close to halting interest rate increases amid signs that its restrictive policy is weighing on economic growth. on monday, An indicator of economic activity The eurozone fell to an eight-month low in July, as the manufacturing sector contracted further and the services sector slowed.
Next week, the Bank of England is expected to raise interest rates for the 14th consecutive time in a bid to force down inflation in Britain, where in June rates rose 7.9 percent from a year earlier.
Britain has defied some predictions, including Those economists at the International Monetary Fund, by avoiding a recession so far this year. But the country still faces a host of tough economic factors: Inflation has proven stubbornly persistent, in part because a tight labor market is driving up wages, while households are increasingly concerned about the impact of higher interest rates on mortgages because payment rates tend to reset every few years.
A weaker-than-expected recovery in China, the world’s second-largest economy, is also weighing on global output. The International Monetary Fund cited a sharp contraction in China’s real estate sector, weak consumption and tepid consumer confidence as reasons for concern about China’s outlook.
Official figures released this month showed that China’s economy slowed significantly in the spring compared to early in the year, as exports slumped, the real estate slump deepened and some heavily indebted local governments were forced to cut spending after funds dipped.
Despite reasons for optimism, the IMF report shows that the global economy is far from clear.
Russia’s war in Ukraine remains a threat that could drive up global food and energy prices, and the IMF noted that a recently terminated agreement that allowed Ukrainian grain exports could herald headwinds.
“The war in Ukraine could intensify, leading to an increase in food, fuel and fertilizer prices,” the report stated. “The recent suspension of the Black Sea Grain Initiative is a source of concern in this regard.”
She also repeated her warning against allowing the war in Ukraine and other sources of geopolitical tension to divide the global economy.
“Such developments could contribute to additional volatility in commodity prices and impede multilateral cooperation on the provision of global public goods,” the IMF said.