The International Monetary Fund (IMF) says the global economy has shown “remarkable resilience” over the past two years, but the escalating conflict in the Middle East risks raising food and energy prices around the world.
The UK will grow more slowly this year than previously thought and remain the second-worst economy in the Group of Seven developed economies, according to new forecasts.
The IMF said the global economy has been on an “eventful” journey over the years since the coronavirus pandemic.
Russia's war in Ukraine triggered a global energy and food crisis, causing a spike in inflation and subsequently causing central banks around the world to raise interest rates.
Pierre-Olivier Grandchat, the IMF's director of research, said: “Despite many gloomy predictions, however, the world has avoided recession, banking systems have proven largely resilient, and major emerging market economies have “We did not experience a sudden economic shutdown.”
According to the IMF, current risks to the global outlook are broadly balanced, meaning there could be both positive and negative surprises that distort expectations.
From a threat perspective, economists say the conflict between Israel and Hamas could spread further into the Middle East, while continued attacks on ships in the Red Sea and the ongoing war in Ukraine pose a risk of new price increases. I warned you that there is.
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This could lead to higher food, energy and transport costs around the world, with low-income countries being hit harder.
Grinchas provided details at a press conference in Washington, D.C., saying the IMF had assessed the economic outlook if oil prices spiked by 15% and transportation costs rose.
He said global inflation could rise by 0.7 percentage points under that scenario.
Gourinxia warned that rising inflation would trigger the central bank's response to further interest rate hikes, which would not only put pressure on business activity but also affect business investment and confidence.
However, he stressed that the world is not currently in such a scenario and it is too early to tell whether the recent rise in oil prices will be sustained.
Another risk is that the recovery of China's troubled real estate sector could be delayed, with knock-on effects for global trading partners.
However, the outlook could improve as many countries hold elections this year, which could lead to tax cuts and boost economic activity in the short term.
In a new assessment of the global economy, the IMF expects global output to rise 3.2% this year, an increase of 0.1 percentage point from its previous report in January.
The UK's gross domestic product (GDP) is expected to grow by 0.5% this year, a slight downward revision from the 0.6% growth forecast in January.
The IMF said that if oil prices rose by 15%, global inflation could rise by 0.7 percentage points (Alamy/PA)
This will make the UK the second-worst performing country in the G7 group of developed economies, behind Germany, which is expected to grow by just 0.2% this year.
The G7 also includes France, Italy, Japan, Canada, and the United States.
The financial institution predicts growth will improve to 1.5% in 2025, which would reverse the UK's position and place it among the top three best-performing G7 countries.
This will be driven by easing inflation and a recovery in household incomes after a prolonged period of pressure on the cost of living.
The IMF predicted that UK consumer price index (CPI) inflation would be 2.5% by 2024, with interest rates then falling further to reach the Bank of England's target of 2% by 2025.
The group said the immediate priority for central banks around the world is to “ensure a smooth decline in inflation by not easing policy too early or delaying it too much so that it does not fall below target.” Ta.
Elsewhere, Grinchous warned that the UK, like other countries, needs to rebuild its fiscal buffers to leave room to support households and businesses in the event of another crisis.
At a press conference, he was asked whether the UK Prime Minister was to blame for the tax cuts he made in his spring budget.
A Treasury spokesperson said: “Today's report shows we are winning the battle against high inflation, and the IMF predicts that inflation will fall much sooner than previously expected. ” he said.
“While medium-term growth forecasts are optimistic, like other peers, the UK's short-term growth is being affected by rising interest rates, with Germany, France and Italy all experiencing more significant rating downgrades than the UK. are doing.
“As inflation falls, wages rise and the economy turns around, we were able to cut taxes for 29 million people as part of our plan to reward work and grow our economy.”
