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Economic Growth Outlook Improves, Inflation Remains Elevated

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The International Monetary Fund (IMF) has revised its forecasts for economic growth in the United States and globally, indicating a stronger outlook than previously estimated. However, the IMF also warns that inflation levels are expected to remain high.

United States Economy

According to the IMF’s latest report released on Tuesday, the U.S. economy is projected to grow by 1.8% this year, an increase of 0.2 percentage points from the fund’s April forecast. The strong performance of the labor market in the first quarter has contributed to increased consumer spending, as stated by the Washington-based international lender.

Despite this positive momentum, households are gradually depleting their savings accumulated during the pandemic. Consequently, it is anticipated that spending will slow down. For 2024, the IMF has lowered its growth projection for the U.S. gross domestic product by 0.1 percentage point to 1%.

Global Economic Outlook

The IMF now predicts that the global economy will grow by 3% this year, up from its previous projection of 2.8% in April. Furthermore, the forecast for 2024 remains unchanged at 3%.

This shift in the IMF’s outlook is primarily influenced by various factors, including the strength of labor markets in advanced economies like the U.S. and Europe, increased spending on services like tourism during the first quarter of the year, reduced financial stability risks, and improved supply-chain operations.

Weak Growth Rate Despite Improvements

Despite the upward revisions, the IMF highlights that the projected global growth rate still falls short of historical standards. This indicates that while there are positive developments, challenges and uncertainties remain within the global economy.

Overall, the revised forecasts reflect a more optimistic outlook for economic growth in both the United States and globally. However, concerns surrounding elevated inflation levels persist as economies continue to recover from the impact of the pandemic.

IMF Warns of Lingering Obstacles to Global Economic Growth

The International Monetary Fund (IMF) has expressed concerns that the obstacles that hampered global economic growth in 2022 are persisting. In its recent World Economic Outlook report, the IMF highlighted high inflation as a major factor that continues to undermine household purchasing power and hinder economic activity. As central banks respond to inflationary pressures by tightening their monetary policies, borrowing costs have risen, further constraining economic growth.

While overall inflation has eased in recent months, primarily due to weakened demand in China and declining energy and commodity prices, the IMF warns that core inflation is expected to take longer to subside. Core inflation, which excludes the prices of volatile food and energy items, is projected to reach 6% globally in 2023, according to the IMF. This estimate is slightly lower than the previous forecast made in April.

The IMF’s forecast for 2024 shows a rise in core inflation to 4.7%, representing a higher estimate than previously anticipated. IMF economist Petya Koeva Brooks characterized inflation as the primary macroeconomic concern in advanced economies.

In response to these challenges, the IMF calls for central banks to maintain a restrictive monetary policy until underlying inflation shows signs of cooling. The report also emphasizes the need for governments to implement spending cuts or tax increases to reduce demand and alleviate inflationary pressures.

As global economies grapple with ongoing inflationary pressures, the IMF urges policymakers to remain vigilant and take necessary measures to safeguard economic stability and support sustainable growth.

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