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IMF improves global outlook as inflation eases

WASHINGTON — The International Monetary Fund said Monday the global economy was expected to slow this year as central banks continue to raise interest rates to rein in inflation, but it also suggested growth would be more resilient than previously anticipated. and that there would be a global recession. probably avoided.

The IMF upgraded its economic growth projections for 2023 and 2024 in its closely watched World Economic Outlook report, noting resilient consumers and the reopening of China’s economy as some of the reasons for a stronger outlook. optimistic.

However, the fund warned that the fight against inflation was not over and urged central banks to avoid the temptation to change course.

“The fight against inflation is beginning to bear fruit, but central banks must continue their efforts,” Pierre-Olivier Gourinchas, the IMF’s chief economist, said in an essay accompanying the report.

Global output is forecast to shrink to 2.9% in 2023, from 3.4% last year, before recovering to 3.1% in 2024. Inflation is expected to slow to 6.6% this year from 8.8% in 2022 and then to 4.3% the next year.

After a succession of downgrades in recent years as the pandemic worsened and Russia’s war in Ukraine escalated, the latest IMF forecasts were more rosy than those released by the fund in October.

China has since abruptly reversed its policy of “zero Covid” lockdowns to contain the pandemic and embarked on a swift reopening. The IMF also said the energy crisis in Europe had been less severe than initially feared and the weakening US dollar was bringing relief to emerging markets.

The IMF previously predicted that a third of the world economy could be in recession this year. However, Mr Gourinchas told a news conference ahead of the report’s release that far fewer countries would now face recessions in 2023 and that the IMF was not forecasting a global recession.

“We are seeing a much lower risk of recession, either globally, or even if you think about the number of countries that could be in recession,” Gourinchas said.

Despite the more hopeful outlook, global growth remains weak in historical terms and the war in Ukraine continues to weigh on activity and sow uncertainty. The report also warns that the global economy still faces considerable risks, warning that “dire health outcomes in China could set back the recovery, Russia’s war in Ukraine could escalate, and tighter global financing costs could worsen the debt overhang.”

Growth in rich countries is expected to be particularly slow this year, with nine out of 10 advanced economies likely to grow slower than they did in 2022.

The IMF projects growth in the United States to slow to 1.4 percent this year from 2 percent in 2022. In the euro area, growth is projected to slow to 0.7 from 3.5 percent. percent. China is projected to take over with output accelerating to 5.2 percent in 2023 from 3 percent in 2022.

Russia is also helping boost global growth, suggesting that efforts by Western nations to cripple Russia’s economy appear to be failing. The IMF forecasts that Russian production will expand 0.3 percent this year and 2.1 percent next year, defying earlier forecasts for a sharp contraction in 2023 amid a series of Western sanctions.

A coordinated US-European plan to limit the price of Russian oil exports to $60 a barrel is not expected to substantially reduce its energy revenues.

“With the current level of the G7 oil price cap, Russian crude export volumes are not expected to be significantly affected, and Russian trade continues to be redirected from sanctioning to non-sanctioning countries,” it said. the IMF in the report.

One of the IMF’s most pressing concerns is the growing trend towards “fragmentation”. The war in Ukraine and the global response has divided nations into blocs and reinforced geopolitical flashpoints, threatening to hamper economic progress.

“Fragmentation could intensify, with further restrictions on cross-border movements of capital, workers and international payments, and could hamper multilateral cooperation in the provision of global public goods,” the IMF said. “The costs of such fragmentation are especially high in the short term, as it takes time to replace disrupted cross-border flows.”