Because of the recovery in travel, the IMF is optimistic about the global economy.
The “International Monetary Fund (IMF)” has raised its growth forecast for the global economy to 3% this year, which is an improvement of 0.2% from the previous estimate in April. This uptick is partly attributed to the resurgence of post-pandemic travel and the positive performance of the job market and services sector.
However, the IMF also highlights certain risks in developed countries, including the challenges posed by surging consumer prices and higher interest rates. Additionally, China’s fragile economic recovery stands out as one of the major concerns for the future.
Pierre-Olivier Gourinchas, the IMF’s chief economist, emphasised that the pandemic recovery continues to exert its influence on the global economy. Although global air traffic showed signs of recovery in May, reaching 96.1% of pre-COVID levels, the IMF cautions that tourism-dependent economies in southern Europe, affected by wildfires, might have limited room for further growth.
The IMF predicts that emerging economies like China and India will experience faster growth this year, while advanced economies in Europe and the United States will progress at a slower pace.
The IMF also cautions about the Eurozone’s largest economy, which is already in recession due to reduced consumer spending caused by higher prices. In light of soaring consumer prices (inflation), Mr. Gourinchas urges central banks to take measures to alleviate the situation. The US Federal Reserve, Bank of England, and European Central Bank have yet to meet their 2% inflation targets, leading to recent interest rate hikes that reached levels not seen since before the 2008 global financial crisis. These central banks are expected to implement further interest rate increases in the coming week.
Ongoing debt issues in China’s property market contribute to continued uncertainty surrounding the country’s recovery from the pandemic. The IMF highlights the fate of China, the war in Ukraine, inflation, and higher borrowing costs as some of the most significant challenges facing the global economy.
While the outlook for the global economy appears more positive, the growth rate still falls below the average of 3.8% seen in the years before the pandemic, specifically in 2000 and 2019.
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