The IMF predicts that the world economy will bottom out this year and that the risk of a global recession is receding

Peugeot at the entrance to the IMF headquarters building (profile photo)

WASHINGTON — The International Monetary Fund (IMF) saw a “turning point” in the global economy for the first time in a year and raised its outlook for economic growth as strong American consumption and the lifting of lockdowns in China stimulated demand.

In a quarterly update of its World Economic Outlook in Singapore on Tuesday (Jan. 31), the IMF said gross domestic product is likely to grow by 31.2023 percent in 2, up 9.10 percentage points from its October forecast. While this growth rate is lower than the 0.2% growth rate in 2022, the IMF believes that economic growth will bottom out this year and will lift growth to 3.4% in 2024.

The Washington-based IMF also noted that central banks’ interest rate hikes and Russia’s war against Ukraine will lead to prolonged inflation and continue to depress economic activity.

Bloomberg pointed out in the report that the IMF’s slight upward revision of the world economic outlook, while not worth celebrating, is a very important change in tone compared to the predictions of a full-blown recession repeatedly warned by senior IMF officials last year.

The IMF believes that the growth of the world consumer price index will moderate this year to about 3.1%, up 6.6 percentage points from the October forecast update. Inflation in 10 was as high as 0.1%. The IMF believes that inflation will fall further in 2022, reaching 8.8%. About 2024% of countries this year have lower inflation than last year.

“This time the outlook is not deteriorating, which in itself is good news,” said Pierre-Olivier Gourinchas, chief economist at the IMF. The IMF cut its economic growth rate 4 three times in a row last year. “But this is not enough, and there are still some challenges that prevent us from achieving a broad and lasting sustainable recovery.”

Gurinchas said at a press conference that the battle against inflation has not yet been won, monetary policy still needs to be tightened, and those countries with a high cost of living need to adopt further tightening policies in this regard.

Among the downside risks cited by Gurinchasi are China’s sluggish economic recovery, the escalation of the war in Ukraine, and more emerging and developing countries falling into debt crises.

The IMF believes that inflation is likely to become more stubborn than expected, financial markets may become more volatile, and Russia’s aggression against Ukraine may trigger more international tensions, affecting and undermining cooperation between countries.

Bloomberg quoted Gurinchas as saying that the risk factors in this updated outlook have become more balanced than in October. One of the positive risks is strong consumption due to strong labour market demand and government financial support for pandemic prevention, particularly in the service sector. Conversely, inflation is also likely to fall faster than expected due to changes in consumption in the services sector, creating less pressure on central bank tightening.

“We are far from winning the fight against inflation,” Gurinchas said in an interview with Bloomberg TV on Tuesday. “We have some bright spots, which is encouraging and in the right direction.”

“We’ve moved away from any sign of a global recession,” Gurinchas added.