The International Monetary Fund (IMF) has raised its forecast for global economic growth to 3% this year, indicating a 0.2% increase from its April prediction. This revision has been attributed in part to the resurgence in travel post-pandemic, along with a strong jobs market and burgeoning services sector.
However, the IMF voiced concerns about risks such as rising consumer prices and elevated interest rates in developed nations. Furthermore, the precarious economic recovery in China was identified as a significant potential risk.
Pierre-Olivier Gourinchas, the IMF’s Chief Economist, explained to the BBC that the recovery process from the pandemic continues to shape the global economy. The first quarter of 2023 witnessed a robust resilience in demand for services, entertainment, and tourism. According to him, while countries that are popular tourist destinations have fared relatively well, those that are more industrialized might have experienced slower recovery.
The International Air Transport Association’s latest data reveals a continued rebound in global air traffic, reaching 96.1% of pre-Covid levels in May. However, the IMF forewarns that further recovery may be limited in tourism-dependent economies in Southern Europe, which have suffered significant damage from wildfires.
Emerging economies like China and India are anticipated to experience the fastest growth this year, while developed economies, including Europe and the United States, are expected to grow at a more gradual pace. The United Kingdom received one of the most significant growth upgrades since the last forecast in April, with the IMF reconfirming May’s expected growth of 0.4%. This was credited to stronger-than-expected consumption and investment due to reduced energy prices and post-Brexit uncertainty. Yet, the UK’s growth remains second slowest in the G7, with Germany expected to contract by 0.3%.
Central banks have been urged to mitigate soaring consumer prices or inflation. While they have raised interest rates to temper the economy, their efforts to reach the 2% inflation target are still underway.
Persisting uncertainty due to China’s ongoing debt issues and its cautious recovery from the pandemic adds to the global economic challenges. These, along with the situation in Ukraine, inflation, and the increasing cost of borrowing money, pose significant challenges, warns the IMF. Despite a slightly more positive global economic outlook, it remains below the pre-pandemic average of 3.8% between 2000 and 2019.
