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IMF global economic outlook improves amid signs inflation is declining

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The world’s central banks may be winning the battle against inflation, the International Monetary Fund has suggested as it modestly upgraded its outlook for the global economy thanks in part to a sharp fall in global oil prices

In its world economic outlook update released today, the fund upwardly revised its forecasts for 2023. It expects the global economy to expand by 2.9 per cent this year, a 0.2 percentage point improvement from what it had tipped in October.

The IMF modestly upgraded its outlook for the global economy thanks in part to a sharp fall in global oil prices.Credit:Peter Rae

The upgrade is largely due to stronger-than-expected growth in the United States and the eurozone. Britain’s economy, however, is forecast to contract by 0.6 per cent, a 0.9 percentage point deterioration from October. There is no separate forecast for Australia.

Despite the lift, global growth at 2.9 per cent would be down on the 3.1 per cent recorded in 2022 and less than half the 6.2 per cent of 2021.

The fund’s director of research, Pierre-Olivier Gourinchas, said there were still ongoing risks to the economy, led by efforts to quell inflation, the war in Ukraine and how China emerged from its COVID lockdowns.

“Despite these headwinds, the outlook is less gloomy than in our October forecast, and could represent a turning point, with growth bottoming out and inflation declining,” he said.

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“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.

“Inflation, too, showed improvement, with overall measures now decreasing in most countries—even if core inflation, which excludes more volatile energy and food prices, has yet to peak in many countries.”

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