The International Monetary Fund (IMF) has raised its global growth projections for the year, but warned that higher interest rates and Russia's invasion of Ukraine would likely still weigh on activity.
In its latest economic update, the IMF said the global economy will grow 2.9% this year, a 0.2 percentage point improvement from its previous forecast in October.
However, that number would still mean a fall from growth of 3.4% in 2022.
It also revised its projection for 2024 down to 3.1%.
“Growth will remain weak by historical standards, as the fight against inflation and Russia’s war in Ukraine weigh on activity,” Pierre-Olivier Gourinchas, director of the research department at the IMF, said in a blog post.
The outlook turned more positive on the global economy due to better-than-expected domestic factors in several countries, such as the United States, the IMF noted.
“Economic growth proved surprisingly resilient in the third quarter of last year, with strong labour markets, robust household consumption and business investment, and better-than-expected adaptation to the energy crisis in Europe,” Gourinchas said, also noting that inflationary pressures have come down.
In addition, China announced the reopening of its economy after strict Covid lockdowns, which is expected to contribute to higher global growth. A weaker US dollar has also brightened the prospects for emerging market countries that hold debt in foreign currency, the IMF said.
But the Washington-based agency 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.
In the US, growth is projected to fall from 2.0% in 2022 to 1.4% in 2023 and 1.0% in 2024, while growth in the euro area is projected to bottom out at 0.7% in 2023 before rising to 1.6% in 2024.