The International Monetary Fund (IMF) has reported that the global economy experienced slightly higher growth in the first quarter than previously projected in April.
However, recent data indicate a mixed picture, with both ‘pockets of resilience’ and signs of declining momentum.
The IMF’s briefing note for the upcoming G20 finance leaders meeting in India highlighted weaknesses in manufacturing across G20 economies and ongoing weakness in global trade.
However, there is a strong demand for services, particularly in the tourism sector’s recovery.
The IMF maintained its April 2023 global GDP growth forecast of 2.8%, with risks primarily tilted to the downside.
These risks include the potential escalation of Russia’s conflict in Ukraine, persistent inflation, and financial sector stress that could disrupt markets.
The IMF noted that inflation appears to have peaked in 2022 but remains above targets in most G20 countries, driven by services inflation.
Disruptions in the supply chain and reduced goods demand will contribute to disinflationary pressures.
G20 policymakers were advised to continue their fight against inflation by tightening monetary policy and maintaining real interest rates above neutral until inflation returns to target levels.
The IMF also cautioned against financial sector stress and recommended deploying financial policy tools when necessary.
It called for tighter fiscal policies to ensure debt sustainability, create fiscal space, and support disinflation.
The IMF stressed the importance of completing a review of its quota resources, indicating the need for increased shareholding for major emerging markets like China.
The organization also urged G20 countries to develop common perspectives on subsidy use, cautioning against policies leading to production fragmentation and retaliatory responses from trading partners.
It emphasized improving outdated World Trade Organization rules to avoid a fragmented global economy.