In its latest World Economic Outlook, released Monday Washington time, the IMF sees the global economy growing 2.9% this year, up from its October projection of 2.7%. The IMF expects growth to accelerate to 3.1.% in 2024, still less than last year’s 3.4%.
“The year ahead will still be challenging,” said Pierre-Olivier Gourinchas, the IMF’s chief economist. “But it could well represent the turning point, with growth bottoming out and inflation declining,” he said.
The IMF’s view, while still cautious, marks a notable shift in tone from October when its economists warned global recession was a significant risk.
“With a global growth rate at 2.9%, we are well away from any sort of global recession marker,” Mr. Gourinchas said during a press briefing. Nonetheless, he warned of downside risks to the outlook, such as rebounding inflation and the war in Ukraine.
Several developments in the past few months contributed to the shift in the IMF’s views, its economists explained. Economic growth proved surprisingly resilient in the third quarter of last year, helped by tight labor markets, stronger-than-expected spending by households and businesses, and Europe’s swift adaptation to the energy crisis caused by the war in Ukraine.
Responding to policy tightening by central banks, inflation is beginning to ease around the world, with headline consumer price inflation now declining in many countries, including the U.S.
In 2022, China’s economy sagged under ever stricter lockdowns to suppress the spread of Covid-19, which weighed on global growth. Beijing eventually gave up and has largely reopened its economy, which is expected to give a significant boost to global growth. China’s economy is projected to expand 5.2% this year, up from 3% in 2022, and significantly faster than the 4.4% expansion the IMF had projected in October.
Mr. Gourinchas said China’s reopening means higher global manufacturing output and less disruption to supply chains, as well as increased demand from Chinese consumers. All of these add to global growth. On the other hand, it could result in higher demand and prices for natural gas, oil and commodities, a restraining factor for global growth. “The balance of these two effects is difficult to assess with a great degree of certainty,” he said. “But on balance, we view the reopening of China as a benefit to the global economy.”
And as inflation pressures started to ease, so did financial conditions. For instance, long-term interest rates have dropped, which helped some economic activity such as U.S. new home sales. The dollar’s retreat after last year’s steep ascent provided some relief to emerging economies by lowering the prices of imported food, fuel and debt payments.
Emerging market and developing economies are leading the improved global outlook. Their growth is projected at 4% this year and 4.2% in 2024, compared with 3.9% in 2022.
Russia is also expected to be less of a drag this year, with its economy expected to grow 0.3% after contracting 2.2% last year. The IMF said trade that Russia lost with countries that have imposed sanctions for its invasion of Ukraine has been replaced with trade from non-sanctioning nations. It added that Russia’s oil exports have felt little impact from a price cap imposed by the Group of Seven major industrial economies.
Growth in advanced economies will be relatively subdued at 1.2% this year, up 0.1 percentage point from the IMF’s October forecast but a slowing from 2.7% for 2022.
U.S. growth is expected to slow from 2% in 2022 to 1.4% this year and 1% next year. Euro-area growth is expected to decelerate from 3.5% last year to 0.7% this year, before rebounding to 1.6% in 2024. The U.K., after putting in solid 4.1% growth last year, will see its economy contract 0.6% this year. It is the only major advanced economy the IMF expects to experience negative growth.
IMF economists say significant downside risks remain worldwide. China’s recovery could be bumpier, particularly if there are larger waves of Covid-19 infections or flare-ups in its slumping property sector. Inflation in other countries could turn out to be more persistent, prompting central banks to raise interest rates further. An escalation in Russia’s war in Ukraine also remains a risk.
The World Bank, the IMF’s sister organization, is more cautious. Earlier this month, the bank had sharply lowered its global growth forecast for this year to 1.7%, from an estimated 3% in June. It cited elevated risks of a worldwide recession due to persistently high inflation.
Thanks to lower fuel and commodity prices and tighter monetary policy, global inflation is set to fall to 6.6% this year and 4.3% in 2024, after peaking at 8.8% in 2022, the IMF said. About 84% of countries are expected to see lower consumer price inflation this year.
“Signs are apparent that monetary policy tightening is starting to cool demand and inflation,” the IMF economists wrote. They said global headline inflation appears to have peaked in the third quarter of 2022.
Core inflation, which excludes volatile energy and food prices, remains elevated but is projected to decline to 4.5% by the fourth quarter of 2023, from 6.9% in the last quarter of 2022.
The easing of inflation is more pronounced in rich economies than in developing nations. The average inflation in advanced economies is expected to decline from 7.3% in 2022 to 4.6% in 2023 and 2.6% in 2024.
The IMF, made up of 190 member countries, promotes international financial stability and monetary cooperation and is a lender of last resort to countries in financial distress.
Write to Yuka Hayashi at Yuka.Hayashi@wsj.com