The International Monetary Fund raises its global growth forecast due to decreasing inflation and unexpected increases in household spending.

• This year, the global economy is predicted to expand by 2.9%, according to the International Monetary Fund.
• This represents a 0.2 percentage point improvement from its previous forecast in October.
• The revised number still indicates a decline from a 3.4% increase in 2022.
• According to IMF calculations, approximately 84% of countries will experience lower headline inflation in 2023 compared to the previous year.

The International Monetary Fund (IMF) updated its global growth forecast for the year on Monday, predicting a higher rate of expansion. However, the IMF cautioned that the increase in interest rates and Russia's invasion of Ukraine could still negatively impact economic activity.

The IMF has revised its forecast for the global economy, predicting growth of 2.9% this year, a 0.2 percentage point increase from its October estimate. Despite this improvement, it is still a decline from the 3.4% expansion seen in 2022.

It also revised its projection for 2024 down to 3.1%.

Pierre-Olivier Gourinchas, director of the research department at the IMF, stated in a blog post that growth will remain weak compared to historical standards due to the conflict between inflation and Russia's war in Ukraine.

Several countries, including the United States, experienced better-than-expected domestic factors, leading to a more positive outlook on the global economy.

Despite the energy crisis in Europe, economic growth in the third quarter of last year was surprisingly resilient, thanks to strong labor markets, robust household consumption, and business investment, according to Gourinchas. Additionally, inflationary pressures have decreased.

The reopening of China's economy after strict Covid lockdowns is expected to contribute to higher global growth, while a weaker dollar has brightened the prospects for emerging market countries that hold debt in foreign currency.

Earlier this month, IMF Managing Director Kristalina Georgieva stated that the economy is not as bad as some people feared, but it is not yet good.

Georgieva warned during a CNBC-moderated panel at the World Economic Forum in Davos, Switzerland, that we must exercise caution.

The IMF has issued a warning that several factors could negatively impact the outlook in the coming months. These include the possibility of China's Covid reopening slowing down, high inflation persisting, the ongoing Russian invasion of Ukraine causing further disruptions to energy and food costs, and markets reacting negatively to unexpected inflation prints.

According to IMF calculations, 84% of countries will experience lower headline inflation in 2023 compared to 2022, but they predict an annual average rate of 6.6% in 2023 and 4.3% in 2024.

The institution in Washington, D.C. stated that one of its main policy priorities is for central banks to address the increase in consumer prices.

The IMF stated in its recent report that effective central bank communication and prompt responses to changes in data are crucial in maintaining inflation expectations and reducing wage and price pressures.

Amid market liquidity risks, central banks must carefully unwind their balance sheets.